Britain slashed its official forecasts for economic growth and expects to borrow sharply more going into the next decade, finance minister Philip Hammond said on Wednesday as he delivered a budget statement in parliament.
Slower economic growth will mean lower tax revenues, giving Hammond little room for the kind of bold budget moves many in his Conservative Party - still smarting from an election mauling in June - are demanding to help households after years of cuts in public spending.
The country’s budget forecasters now expect gross domestic product will grow by 1.5 percent in 2017, compared with a forecast of 2.0 percent made in March, reflecting a slowdown this year as last year’s Brexit vote weighed on the economy.
The Office for Budget Responsibility saw growth in 2018 at 1.4 percent, lower than its previous forecast of 1.6 percent, Hammond told parliament.
The revisions for later years were more acute - GDP growth forecasts in 2019 and 2020 stood at 1.3 percent in both years compared with 1.7 and 1.9 percent respectively seen in March.
The OBR had been expected to take a gloomier view on the economy after it said in October that it would lower its projections for productivity growth in the years ahead.
By 2021 and 2022, growth was seen picking up only slightly to 1.5 and 1.6 percent respectively.
Many lawmakers had called on Hammond to produce a bold budget to turn around the fortunes of Prime Minister Theresa May who lost her parliamentary majority in a failed election gamble in June, is struggling to make headway in Brexit negotiations with the EU and recently lost two ministers from her cabinet.
As well lower tax revenues, slower growth will add to the challenge of turning Britain’s budget deficit into a surplus by the mid-2020s.
Hammond said the OBR now expected Britain would borrow more in the coming years.
Britain is expected to run a budget deficit of 1.3 percent of GDP by the 2021/22 financial year, almost double the previous estimate of 0.7 percent.
Before last year’s Brexit vote, Britain had been aiming to post a budget surplus by the end of this decade.
UK slashes growth forecasts, sees higher borrowing