Brexit “responsible” for drop in public finances

Phillip Hammond, the UK’s Chancellor of the Exchequer, revealed the true cost of voting to leave the EU in his Autumn Statement yesterday – around £58.7 billion (€68.7 billion).

While Hammond praised the “strength and resilience” of the UK economy since the Brexit vote, he announced a cut to growth forecasts as he prepared Britain for the impact of leaving the EU.

Berenberg’s senior UK economist Kallum Pickering, said that Brexit or no Brexit, the government was unlikely to meet a previous government  target of achieving a small surplus in the headline budget by 2019-20.

“Brexit just gives them an excuse to scrap it,” he said.

Pickering added that the UK faced a modest demand-side shock as uncertainty from the Brexit vote drags on consumption and investment. In the longer term, he said that the UK faced a supply-side shock from Brexit through less trade, investment and migration with the EU.

Others think that the political uncertainty surrounding Brexit may be less of a shock for the UK economy.

Richard Larner, head of research at Brooks Macdonald, said in the short term, political gridlock is likely to keep the impact of Brexit on domestic UK growth limited, but falling corporate investment is expected to emerge as a significant headwind in the medium term.

Phillip Hammond speaking to the BBC said of Brexit negotiations: “We are looking at a range of possible outcomes and preparing for a range of possible outcomes. That’s the prudent thing to do.”

Theresa May, UK Prime Minister, is expected to trigger Article 50 at the end of March next year.

In response to such uncertainty, the Chancellor has taken a low risk approach to fiscal policy, setting himself generous fiscal targets with sufficient headroom in case growth slows by more than expected, according to Pickering.

©2016 funds europe

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