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Britain is facing a budget 'bloodbath' due to slow growth

Britain is facing a budget 'bloodbath' due to slow growth
Published by
Business Insider

2m read

6 October 7.35am

Hargreaves Lansdown is not responsible for this article's content or accuracy and may not share the author's views. News and research are not personal recommendations to deal. All investments can fall in value so you could get back less than you invest. Article originally published by Business Insider.

Chancellor Philip Hammond faces a "bloodbath" in the next Budget, according to the Financial Times, with official forecasts expected to show that growth has been much slower than thought in recent years.

According to the FT, the independent Office for Budget Responsibility (OBR) will next Tuesday release new analysis showing that it has drastically overestimated productivity in recent years, which in turn will lead it to offer more pessimistic than expected forecasts of growth at November's budget.

This will wipe out Hammond's ability to set aside money to smooth Britain's exit from the EU. Hammond last year pledged to build up a £27 billion war chest to help boost growth during Brexit. But if growth is slower, there will be less money collected in tax receipts and therefore less to set aside.

The OBR's revisions will reduce Hammond's war chest by as much as two-thirds, leaving Hammond with just "single digits of billions" to work with, according to Treasury officials cited by the FT.

Hammond and the Treasury are committed to cutting the deficit to just 2% of GDP by the fiscal year 2020-21. If the Chancellor wishes to stick to his current deficit reduction schedule he will have to slash the amount of money set aside for Brexit in light of the OBR's revised forecasts.

Until now the OBR has been significantly more optimistic about the prospects for the British economy than the likes of the Bank of England and the OECD. The new forecasts are likely to bring it closer to par with these institutions.

The OBR forecast GDP growth of 2% in 2017 at the Spring Budget and forecast 1.6% growth in 2018. That compares to the Bank of England's most recent forecast of just 1.7% growth in 2017 and 1.6% in 2018.

This article was written by Will Martin from Business Insider and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.

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  • 6 October 7.35am
  • 2m read

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Article originally published by Business Insider. Hargreaves Lansdown is not responsible for its content or accuracy and may not share the author's views. News and research are not personal recommendations to deal. All investments can fall in value so you could get back less than you invest.

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