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Official forecasts for Britain’s economic growth have been cut sharply, Philip Hammond revealed on Wednesday as he outlined a Budget that seeks to prepare the country for the lead-up to Brexit.
Putting a brave face on the official forecasts showing weaker growth, lower rises in productivity and worse public finances in the medium term, the chancellor outlined a Budget that he said would create a “future that would be full of new opportunities”.
The Office for Budget Responsibility cut the projected growth rate for 2017 from 2 per cent to 1.5 per cent. The independent fiscal watchdog added that its projections for future years were also significantly worse than it had forecast at the time of the March Budget.
For 2021, instead of projecting the economy would expand 2.1 per cent, it now expected growth to be 1.6 per cent. Sterling is slipping lower following the forecasts, dropping by 0.2 per cent to $1.3216, having been flat beforehand. The FTSE 100 is holding its highest levels of the day, up 0.6 per cent at 7,457.38.
Mr Hammond said that the government would make progress on achieving a Brexit implementation agreement “a top priority in the weeks ahead”. The chancellor said he is setting aside £3bn over the next two years for Brexit preparations and stands ready to allocate further sums “if and when needed”.
Mr Hammond described the OBR forecasts as representing “a turning point in our recovery” as debt as a proportion of national income will peak in 2017-18.
But the lower rate of growth has still dimmed the outlook for the public finances with public borrowing. Despite an £8.4bn improvement in 2017-18 than in the March Budget, borrowing will be higher than previously forecast for most of the forecast horizon.
The chancellor announced that a national productivity investment fund would last a year longer than previously announced and would increase in size to £31bn from £23bn.
He announced £400m for an electric car charging infrastructure fund and higher taxation on new diesel cars.
Mr Hammond said too much of the UK’s economic growth was concentrated in its capital strategy, and he was backing the northern powerhouse and the Midlands engine initiatives.
He announced £300m for High Speed 2 to incorporate further improvement in the train network in the north of England as well as more money for elected conservative mayors in the Midlands and Teeside.
Mr Hammond said that the government would introduce some measures to help those on low incomes, including a £1.5bn package to smooth the implementation of universal credit by removing waiting times for families to receive their payment.
The so-called national living wage, a higher minimum wage for those over 25, will increase from £7.50 to £7.83 in April.
The chancellor announced an increase in the tax-free personal allowance for income tax to £11,850 and the higher rate threshold for income tax would increase to £46,350. Both increases were in line with inflation at 3 per cent.
Spending on the NHS will increase by £1.6bn next year and £350m this winter.
Mr Hammond’s difficulties have been heightened in recent weeks by tensions with the prime minister and sniping from some eurosceptic Tory MPs who are keen to see the back of the most powerful figure in government seeking a softer Brexit in which Britain retains close links to the EU.
Downing Street said that foreign secretary Boris Johnson and environment secretary Michael Gove, two key pro-Brexit ministers, were among those who endorsed the Budget.