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Britain's public finances expected to take Brexit hit

Xinhua, November 24, 2016 Adjust font size:

Britain's public finances are expected to take a Brexit hit next year, but a recession is not forecast and growth is expected to recover in 2019, the country's Chancellor of the Exchequer Philip Hammond said on Wednesday.

Hammond unveiled the first major restructuring of economic policy since the Brexit vote on June 23 in the annual autumn economic statement.

The economy slowdown cuts government revenue expectations, and the public sector net borrowing requirement for 2020/21 is now forecast to be 20.7 billion pounds (about 25.7 billion U.S. dollars), against an expectation in the March Budget for an 11-billion-pound surplus.

This will leave a 122-billion-pound gap of cumulative spending between now and 2020/21 compared with the March Budget expectations.

The think-tank the National Institute for Economic and Social Research (NIESR), said in a statement that the autumn statement makes clear the immediate fiscal impact of Brexit.

NIESR also noted that net contributions to the EU budget from the UK are 8.5 billion pounds per year. After withdrawal that money is likely to remain in the UK, offsetting extra costs.

The shadow Chancellor John McDonnell was highly critical: "The downward spiral of austerity and the failure to invest have left the economy in such a fragile state that growth has now been revised downwards, whilst borrowing and debt will now be higher than expected."

The National Infrastructure Commission will now oversee increased spending of between 1.1 and 2 percent of GDP each year on infrastructure, up from 0.8 percent of such spending for this financial year, said Hammond.

Corporation tax will fall to 17 percent by 2020, the lowest among G20 nations. Business reaction was favorable.

Terry Scuoler, chief executive of EEF, the manufacturers' organization, said: "Business was looking for reassurance ... at a time of considerable uncertainty and Hammond has helped calm nerves with the right level of pre-Brexit tonic."

Hammond also said that from late 2017 he would alter the relationship of the annual Budget and the autumn statement, moving the Budget to autumn and the statement to spring in line with the best practice recommended by the International Monetary Fund (IMF) and others.

Paul Hollingsworth, UK economist at Capital Economics, an economics intelligence firm, said that Hammond had put an end to the autumn statement "put an end to austerity".

He added: "With a goal of achieving a budget balance in the next parliament, austerity is just set to continue for even longer. But a more gradual path of belt-tightening should help the economy to remain resilient." (1 pound = 1.24 U.S. dollars) Endit