Published: Mon, December 05, 2016
Economy | By Melissa Porter

Autumn Statement: Government set to borrow more as economy slows down

In his Autumn Statement today, Philip Hammond had good news for SMEs, announcing that £400m would flow into venture capital funds through the British Business Bank to unlock £1bn in finance for growing firms.

"Our task now is to prepare our economy to be resilient as we exit the European Union and match-fit for the transition that will follow", Hammond told parliament on Wednesday to cheers from lawmakers in his ruling Conservative party.

Hammond said the Office for Budget Responsibility (OBR) has revised its growth projection for the United Kingdom economy in 2017 down to 1.4% from 2.2% and to 1.7% in 2018 from 2.1%.

The Office for Budget Responsibility slashed growth forecasts and predicted higher than previously expected borrowing, following the vote to leave the EU. "We will maintain our commitment to fiscal discipline while recognizing the need for investment to drive productivity and fiscal headroom to support the economy through the transition".

He also said the country's debt is expected to rise this year and peak at 90.2 percent of gross domestic product in 2017-2018.

The Chancellor also said there will be £392m to LEPs in the Midlands, and that the government will continue to work towards a second devolution deal with the West Midlands Combined Authority. All other measures in the Autumn Statement will be paid for through spending cuts and tax hikes. He noted that this is equivalent to the IMF's forecast for growth in Germany next year, and better than forecasts in Italy and France.

But the overall message of his first budget statement since taking office in June was not significantly different from those of his predecessor George Osborne who spent six years bringing down the budget deficit.

"This Autumn Statement responds to the challenge of building on that strength, while also heeding the warnings in the OBR's figures, as we begin writing this new chapter in our country's history".

"We will focus government infrastructure investment to unlock land for housing with a new £2.3bn Housing Infrastructure Fund to deliver infrastructure for up to 100,000 new homes in areas of high demand", he said. "The Chancellor has relaxed his fiscal targets to make space for a modest infrastructure spending giveaway over the next five years", it said.

Britain is expected to run a budget deficit of almost £22 billion in the 2019/20 financial year which until recently had been the target date for a first budget surplus, Hammond said, citing forecasts from the budget office.

In an illustration of how sharply the public finances have deteriorated since March, the OBR forecast that rather than the £10.4bn surplus Mr Osborne had been hoping to achieve in 2019/20, the United Kingdom will still have a deficit of £20.7bn at the end of a decade of austerity.

The opposition Labour Party said the government was "unprepared and ill-equipped" for Brexit.

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