Britain ramped up its borrowing forecasts on Wednesday as the economy slows in the wake of the Brexit vote, finance minister Philip Hammond said in the country’s first budget plan since voters decided to leave the European Union.
The weaker growth and tighter public finances outlined by Hammond leave Prime Minister Theresa May’s government little room to ramp up public spending or make big cuts to taxes to help the world’s fifth-largest economy through its EU divorce.
Britain will need to borrow 122 billion pounds more over the next five years than it expected before voters decided to leave the EU in June, Hammond said. The net public sector debt is forecast to hit a peak of 90.2 percent of economic output in 2017/18, he said.
“Our task now is to prepare our economy to be resilient as we exit the EU and match-fit for the transition that will follow,” Hammond told parliament to cheers from lawmakers in his ruling Conservative party.
Hammond said that while the Brexit vote “will change the course of Britain’s history” it “also makes more urgent than ever the need to tackle our economy’s long-term weaknesses like the productivity gap.”
In an attempt to prepare Britain for leaving the EU, Hammond said the government planned to invest 1.0-1.2 percent of GDP on economic infrastructure from 2020, up from 0.8 percent now.
Sterling was little changed at $1.2406.
The Office for Budget Responsibility, Britain’s independent budget forecasters, said gross domestic product would grow by 1.4 percent in 2017, down from an estimate of 2.2 percent made in March, before voters decided to leave the EU.
Hammond, announcing the first detailed economic plans of May’s government, said the OBR believes uncertainty about Britain’s trading relationships with its EU neighbours – who buy nearly half the country’s exports – will cut growth by 2.4 percentage points over coming years.
Hammond said the OBR now saw economic growth in 2018 at 1.7 percent compared with March’s forecast of 2.1 percent.
“We will maintain our commitment to fiscal discipline while recognising the need for investment to drive productivity and fiscal headroom to support the economy through the transition.”