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Britain’s Chancellor of the Exchequer Philip Hammond leaves 11 Downing Street to deliver his half-yearly update on the public finances, in London, March 13, 2018. REUTERS/Toby Melville
March 13, 2018
By William Schomberg, David Milliken and Andy Bruce
LONDON (Reuters) – Britain’s sluggish economy is heading for more weak growth over the next five years, according to official forecasts announced by finance minister Philip Hammond on Tuesday as the country heads for Brexit.
Hammond, delivering a half-yearly budget update, said he remained focused on reversing a sharp rise in public debt since the global financial crisis, and he turned his fire on the opposition Labour Party’s plans for higher spending and borrowing.
Despite a strong global recovery, the British economy is now expected to grow by 1.5 percent this year, just a touch higher than a forecast of 1.4 percent in November, the independent Office for Budget Responsibility said.
Its forecasts in 2019 and 2020 were kept unchanged at 1.3 percent and were cut for the following two years, limiting Hammond’s ability to loosen his grip on public spending later this year – something he hinted at again on Tuesday.
The average expected growth rate over the next five years is half the pace of before the 2007-09 financial crisis.
The projections were below those of many private sector economists and Hammond told parliament he was aiming to prove the official ones wrong. “That’s the OBR’s forecast, Mr Speaker, but forecasts are there to be beaten,” he said.
Britain’s economy has slowed sharply since the vote in June 2016 to leave the European Union.
Earlier on Tuesday, the Organisation for Economic Cooperation and Development said Britain would grow more slowly than all the other Group of 20 leading economies this year, leaving it lagging behind the global recovery.
Hammond tried to focus on the positives in Tuesday’s projections, saying an expected fall in debt as a share of the economy over the next five years was “a turning point” in Britain’s recovery from the crisis.
He also pointed to the OBR’s prediction of a return to growth in spending power for households soon, while keeping up his attacks on the opposition.
Labour delivered a huge election blow to the government last year, winning enough support from voters frustrated with years of spending cuts and weak wage growth to deprive Prime Minister Theresa May of her parliamentary majority.
“There is indeed light at the end of the tunnel,” Hammond said in parliament, turning his gaze across the chamber to John McDonnell, Labour’s would-be chancellor of the exchequer.
“But we’ve got to make absolutely sure it isn’t the shadow chancellor’s train, hurtling out of control in the other direction, towards Labour’s next economic trainwreck.”
McDonnell, a self-proclaimed admirer of the ideas of Karl Marx and a veteran campaigner from Labour’s far left, accused Hammond of astounding complacency.
“We face – in every public service – a crisis on a scale we’ve never seen before,” he said. “Hasn’t he listened to the doctors and nurses, the teachers, the police officers, the carers and even his own councillors? They are telling him they can’t wait for the next budget. They’re telling him to act now.”
Some lawmakers in Hammond’s Conservative Party have also called for more spending now.
Britain has lowered its annual borrowing from 10 percent of gross domestic product in 2010, just after the financial crisis, to just over 2 percent now, the smallest shortfall since 2002.
Hammond announced no big tax or spending moves in Tuesday’s speech which he intended as a low-key update on the public finances.
The outlook for growth and for the public finances remain a lot weaker than before the Brexit vote.
Also worryingly for the government, the OBR said the economy, while weak, was already running slightly faster than it could do without generating excessive inflation.
A recent recovery in productivity growth – vital for long-term economic prospects – was likely to be reversed, the OBR said.
Despite the slow overall growth seen for Britain, the government is on course to borrow 20.3 billion pounds ($28.4 billion) less in cumulative terms between 2017/18 and 2022/23 than the OBR predicted in November.
The expected budget deficit for the current 2017/18 fiscal year was lowered to an estimated 45.2 billion pounds from a forecast of 49.9 billion made in November, although that was less of a cut than many economists had expected.
Hammond said he was on course to meet a target of bringing the debt-to-GDP ratio down each year, saying the OBR saw it falling to just under 78 percent of GDP by the 2022/23 fiscal year from an expected peak of 85.6 percent now.
He also looked on course to meet another target to cut the budget deficit, adjusted for the swings of the economic cycle, to 2 percent of GDP by the 2020/21 financial year.
He said he was likely to have 15.4 billion pounds of headroom below that target, up a bit from November’s forecast.
That would give the government the possibility of increasing spending shortly before the next national elections due in 2022.
($1 = 0.7161 pounds)
(Additional reporting by William James and Sujata Rao; editing by David Stamp)