LONDON, (Xinhua) — The cost of Brexit to the UK economy will be 58 billion pounds (about 72 billion U.S. dollars), according to figures released on Wednesday in the wake of the government’s annual autumn financial statement.
The OBR, the economic forecaster set up by the UK government, unveiled the full range of the statistics and data that UK Chancellor of the Exchequer Philip Hammond based Wednesday’s autumn statement on.
It is the first major economic announcement since the referendum vote to leave the European Union (EU) on June 23, and shows the expected negative impact of that vote on future economic growth and government revenue.
The UK government will need to borrow an additional 122 billion pounds up to April 2021 above the borrowing total in the March Budget, according to the OBR.
About half of this amount, OBR director Robert Chote told journalists on Wednesday afternoon, will be down to the Brexit effect.
“The economy has not slowed as sharply as some forecasters feared in the wake of the referendum vote to leave the EU. But it has slowed. And the outlook is weaker than at the time of the Budget,” said Chote.
“We expect the quarterly growth rate of GDP to continue slowing into next year, as uncertainty over the UK’s future trade and migration regime delays business investment and as the fall in the pound squeezes real consumer spending by pushing up inflation. But growth remains positive,” Chote said.
Chote said that cumulative growth potential of the economy will be weaker than thought in March, largely because weaker business investment depresses trend productivity growth by slowing capital deepening.
Potential GDP growth is also depressed by a weaker outlook for net inward migration, and by 2020/21 the economy will be between 2 and 2.5 percent smaller than it would have been based on the March forecast.
The outlook for the public finances is also weaker than expected in March. Borrowing was already overshooting the OBR forecast ahead of the referendum, said Chote, because of weak income tax receipts and higher local authority spending.
“Looking forward, the income tax shortfall increases as the downward revision to our trend productivity forecast slows the growth of average earnings,” he said.
The negative impact of Brexit will be felt sharply next year with a squeeze on real consumer spending as the fall in the pound since the referendum pushes up import prices and Consumer Price Inflation.
However, there is a positive from Brexit.
Chotes said: “These two negative effects are partially offset by a near-term boost to GDP from stronger net trade volumes, as the weaker pound encourages exports and discourages imports and as weaker consumer and investment spending mean less demand for imports.” (1 pound = 1.24 U.S. dollars)