Delivering his first UK budget, chancellor of the exchequer Philip Hammond said the UK economy had "continued to confound the commentators" by delivering "robust growth".
Mr Hammond was given budget boost as the Office for Budget Responsibility sharply upgraded growth forecasts for 2017 from 1.4 per cent to 2 per cent.
The budget deficit will be £51.7 billion pounds for 2016-17, Mr Hammond said, compared with the £68.2 billion pounds forecast in November.
The OBR forecasts project a cut in borrowing of £23.5 billion pounds over the next five years.
The budget sets out a a plan for a “brighter future” as the UK leaves the European Union, Mr Hammond told MPs.
In 2018 UK growth is forecast to slow to 1.6 per cent , before picking up to 1.7 per cent, then 1.9 per cent , and back to 2 per cent in 2021, the chancellor said.
However,ratings agency Standard & Poor’s warned on Wednesday morning that the British economy was slowing as consumer spending slackened..
Brexit
With British prime minister Theresa May expected to start the formal Brexit process within weeks, Mr Hammond told the House of Commons: "As we start our negotiations to exit the European Union, this budget takes forward our plan to prepare Britain for a brighter future; it provides a strong and stable platform for those negotiations."
He added: “We are building the foundations of a stronger, fairer, more global Britain.”
Mr Hammond publishes his budget in the wake of credit rating agency Standard & Poor’s warning that Britain’s economy is “losing momentum”. In a report issued this morning, S&P warns that the “consumer spending spree” is cooling off. That could have significant implications for growth, as consumers have driven UK growth in the last few quarters.
Demand for credit from businesses is also “softening”, which is likely to also indicate that growth may be weakening. S&P warns that this is the first sign that growth is starting to slow, after being stronger than expected since last June’s referendum. The agency predicts that the Bank of England will maintain loose monetary policy (ultra-low interest rates), but this won’t be enough to prevent a slowdown.
Mr Hammond’s budget statement will be overshadowed by prime minister May’s plan to launch Britain’s EU divorce talks before the end of March, starting a process that is expected to make companies wary about long-term investments.
The EU buys about half of Britain’s exports but May has said her Brexit priority is to control immigration rather than keep the country in the bloc’s single market.
Mr Hammond, who has been nicknamed Spreadsheet Phil for his unflashy approach to running the economy since he took over from George Osborne last year, plans to build up a reserve fund in case he needs to help Britain’s economy through a Brexit slowdown ahead.
Spending
That means any extra spending now on stretched public services, such as care for the elderly, will have to be funded by higher taxes, for example on sales of tobacco, or by spending cuts elsewhere.
Hammond is under pressure to spend more on other services such as health and prisons, as well as to ease the hit to smaller retailers from an impending property tax rise.
But at the weekend, he took aim at the opposition Labour Party for opposing the squeeze on public finances.
"That approach is not only confused, it's reckless, unsustainable and unfair on our young people, who would be left to deal with the consequences," he wrote in the Sunday Times.
Hammond is hoping that voters will continue to stomach the squeeze on public spending, the effects of which are set to intensify, especially for poorer households which have seen many of their welfare benefits frozen while inflation is now rising.
Instead, Hammond is likely to turn attention to his efforts to address the long-term weaknesses of Britain’s economy which, if fixed, could allow economic output and wages to grow faster in the future.
The government has said it will spend more on skills training for 16- to 19-year-olds and provide more funding to schools. Last year, Hammond said he would spend more on infrastructure in areas such as transport and broadband.
He is also expected to announce a review of how Britain funds its social care spending which is set to rise as the population ages. Details of the review may be announced at a budget update in November which Hammond has said he wants to become the main fiscal event of the year.
Reuters/PA
