Chancellor Philip Hammond’s downbeat Autumn Statement gave a first glimpse of Brexit’s economic impact, but pro-Brexit and Remain MPs continue to fight over forecasts.
Here are six developments for the Brexit economy this week.
1. Chancellor Philip Hammond’s first – and last – Autumn Statement on Wednesday gave a first official indication of the likely impact of Brexit on the country’s economic fortunes. Hammond presented Office for Budget Responsibility (OBR) data forecasting 2017 GDP growth will drop to 1.4% in 2017, before recovering slowly in later years. Overall, the OBR forecast that by 2020, the economy will have grown 2.4% less than it had predicted before the June EU referendum. According to the OBR, slower GDP growth will add an eye-watering £122 billion to public sector borrowing over the next five years, propelling public sector net debt to 90% of GDP by 2020. The OBR attributed nearly half of the forecast budget deficit – £58.7 billion – to the effects of Brexit. Held back by deteriorating public finances, Hammond announced some limited measures to boost productivity, including the creation of a £23 billion ‘national productivity investment fund’, but widely anticipated measures to help ‘JAMs’ – families who are ‘just about managing’ – were largely absent from his plans.
Tory in-fighting about the economy continued. Ahead of his statement, senior pro-Brexit colleagues had attacked Hammond for his “relentless negativity” around the economy, and after Hammond’s statement the OBR forecasts were derided as too pessimistic by Brexiters. They, in turn, were slammed by pro-Remain Tory MPs, including Nicky Morgan and Dominic Grieve. Criticism of Hammond was not confined to the Tory benches. Former Labour chancellor Alistair Darling lamented the government’s secrecy and Hammond’s Brexit evasiveness, after it emerged that the OBR had to base its projections on “two public statements by the Prime Minister”.
2. On Thursday Paul Johnson, director of the Institute for Fiscal Studies, predicted a “dreadful” decade for living standards, with 2021 net earnings forecast to lag behind those in 2008. “We have not seen a period remotely like it in the last 70 years,” Johnson said. Meanwhile, the Resolution Foundation said that rising inflation and the benefits freeze introduced by George Osborne will hit working households hard. A study by the consultancy Policy in Practice, released on Monday, found that so-called “just about managing” families will be £2,500 a year worse off by 2020. Meanwhile a Credit Suisse survey calculated that $1.5tn (£1.2tn) had been wiped off UK household wealth since the June Brexit vote.
3. According to OBR calculations, an expected fall in net migration levels will cut tax revenues by £16bn over the next five years, the Independent reported on Wednesday. The OBR said it based its predictions on the government implementing a tighter migration regime, “but not one sufficiently tight to reduce net inward migration to the desired ‘tens of thousands’”. The figure could increase further if plans to reduce net migration to the tens of thousands are implemented. The news was cheered by Brexiters, quoted by the Telegraph as feeling “vindicated” in their pre-referendum calls for migration cuts.
4. Though almost 87% of tech professionals surveyed in March opposed Brexit, London’s position as a technology hub received another fillip this week with confirmation that Facebook would invest further in the capital. The Facebook decision to add 500 jobs in London follows recent decisions by Google and Apple to build large London headquarters.
5. Share prices of bailed-out RBS, Northern Rock and Lloyds have dropped by about one fifth since the referendum vote, adding another £9 billion to the cost of the 2008 bank rescue. Revising them upwards for the second time this year, the OBR said the costs would rise from £17.5 billion to £27 billion, also because of rising interest costs.
6. David Davis, the Brexit secretary, added to widespread confusion about the government’s Brexit plans during his trip to Strasbourg on Tuesday. Chairman of the European People’s party Manfred Weber said that Davis had told him Britain wanted to stay in the single market. It followed Theresa May’s acknowledgement at the CBI on Monday that “people don’t want a cliff edge”, a comment widely interpreted to mean the government would seek a transitional arrangement to protect trade post Brexit. But May’s aides were quick to deny that she was suggesting any such a deal. Following calls from 60 Tory MPs, including leading pro-Brexit MP Michael Gove, for Britain to leave the single market and customs union, 90 Labour MPs warned in a letter to the Guardian on Monday that a hard Brexit would punish working people.
This piece was corrected on December 7 to make clear that it was the Resolution Foundation not the Institute of Fiscal Studies in para 3 which had said working families would be hit hard.
Edited by Geert Linnebank