Since the March budget, the public finance prospects for the UK have crashed by £25billion, according to a prominent think tank.
London research institute, The Institute for Fiscal Studies, stated that weak growth would eventually cause lower than expected tax receipts, in turn raising borrowing by £25billion by 2019/2020. These weaker prospects in public finance would inevitably lead to a “significant increase in deficit”
These predictions emerged ahead of the Autumn Statement, due to be released on 23rd November, which marks Chancellor Philip Hammond’s first real challenge. Speaking to the BBC, the Institute for Fiscal Studies’ economist, Thomas Pope, commented, “The new chancellor’s first fiscal event will not be easy. Growth forecasts are almost sure to be cut, leading to a significant increase in the deficit even if all the very challenging spending cuts currently planned are in fact delivered.”
Philip has already made his priorities to spend money on new homes and transport clear, breaking the mould set by his predecessor, George Osborne, who focused more on balancing the books by 2020. In the spirit of this, The Institute for Fiscal Studies has claimed that Philip has ‘two big decisions’ to make. Primarily, whether or not he should increase spending or cut taxes in a plea to boost the economy, and secondly on the targets he should set for the Institution. Given the unpredictable nature of the current economic climate, Thomas advised Philip “might be wise to respond cautiously for now.” He added, “any new fiscal targets should be reasonably flexible.”
A number of groups have reduced their UK growth forecasts while increasing their inflation forecasts since the British public voted in favour of Brexit. Take The International Monetary Fund, for example. In October, the organisation’s forecast for 2017 UK Economic Growth fell to 1.1% while describing global recovery as being “weak and precarious.”
The Organisation for Economic Co-operation and Development, more commonly referred to as The OECD also reduced its forecast for the upcoming year from 2% to 1%, citing “Uncertainty about the future path of policy and the reaction of the economy remains very high and risks remain to the downside.”
At the start of November, the Bank of England raised its growth forecast for both this year and next, but reduced expectations for 2018 down to 1.5% from 1.8%.