Hammond Urges MPs to Rule Out No-Deal Brexit to Avoid Disruption

LONDON (Capital Markets in Africa) – Chancellor of the Exchequer Philip Hammond issued a fresh warning that leaving the European Union without a deal would damage the U.K. economy and leave people less well off.

He said Parliament’s rejection of Theresa May’s Brexit deal had created a “cloud of uncertainty” and warned that crashing out would cause “significant disruption.” He urged politicians to rule out a no-deal Brexit in a vote Wednesday evening.

In his Spring Statement, the chancellor unveiled new growth forecasts with the outlook for this year cut from 1.6 percent to 1.2 percent, the weakest since the financial crisis. There was an improved outlook for the public finances, though that’s dependent on the U.K. leaving the EU with a deal. A chaotic exit that would throw his forecasts into disarray.

“Last night’s vote leaves a cloud of uncertainty hanging over our economy,” Hammond told Parliament. “The idea that some readily available fix to avoid the consequences of a no-deal Brexit is just wrong.”

The budget deficit will be lower in the coming years than the Office for Budget Responsibility forecast in October, Hammond said. The growth prediction for 2020 was kept at 1.4 percent, and the OBR sees an acceleration the following year.

His statement comes after Parliament overwhelmingly rejected May’s Brexit deal for a second time Tuesday night.

Brexit Delay
Lawmakers are expected to rule out a no-deal departure — a scenario the premier herself accepts would “damage” the economy. That raises the prospect that Brexit will be delayed, bringing relief to businesses but extending the uncertainty hanging over the economy.

The problem facing Hammond is that the OBR forecasts were prepared on the assumption that Britain leaves the EU on March 29 in a smooth fashion.

Earlier today, the government unveiled plans for temporary tariffs if the U.K. crashes out without a deal. Britain will avoid imposing tariffs on most imported goods in the event of a no-deal Brexit, though officials said prices of key European Union products including beef, cheese and cars will rise.

The OBR forecasts follow recent downgrades by the Bank of England and the OECD. The latter published a huge cut this month, predicting expansion of just 0.8 percent. That would be the weakest performance since the 2009 recession.

Lower Borrowing
The OBR revised down its 2018-19 borrowing forecast by almost 3 billion pounds ($4 billion) to 22.8 billion pounds, the lowest for 17 years, and cut a further 27 billion pounds from its projections for the following five years. Driving the improvement are stronger-than-expected tax receipts and lower debt-interest costs.

He also held out the prospect of a boost for cash-strapped government departments if he is able to release money kept back in case of a no-deal Brexit. His fiscal mandate requires that structural borrowing is no more than 2 percent of GDP in 2020-21. The deficit is now projected to come in a huge 26.6 billion pounds under the ceiling, a buffer than could be reduced to pay for extra teachers, nurses and police officers.

Hammond said leaving the EU with a transition period would unlock a deal dividend, a recovery in business confidence and investment. He said he wasn’t able to start the three-year spending review that’s supposed to end austerity, but said he would do so later this year.

A Brexit divorce agreement will be key.

“I’m confident that we’re going to do a deal,” Hammond said. “And when we do, the British people will fully expect us to fire-up our economic plan, to seize the opportunities as confidence in our economy returns.”

Source: Bloomberg Business News