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Financial News: UK Sets Aside Extra GBP 3 Bln For

UK Sets Aside Extra GBP 3 Bln For Brexit Preparation, Trims Growth Forecasts

11/22/2017 - 09:56:00 (RTTNews)

(RTTNews) - The UK government set aside an additional GBP 3 billion over the next two years to aid the process of the country's exit from the European Union and slashed the growth forecasts for the next few years mainly due to a significant downward revision to potential productivity growth.

"The negotiations on our future relationship with the EU are in a critical phase," Chancellor of the Exchequer Philip Hammond said in his Budget speech, the second in his term thus far.

"We have already invested almost GBP 700 million in Brexit preparations," he said. "And today I am setting aside over the next two years another GBP 3 billion."

The chancellor further said the government is ready to commit more sums if and when needed.

Hammond presented fresh forecasts for the UK economy during his speech that showed sharp downward revisions to the growth outlook.

The projections, made by the Office for Budget Responsibility, showed that the growth forecast for this year was cut to 1.5 percent from 2 percent.

"The main reason for lowering our GDP forecast since March is a significant downward revision to potential productivity growth, reflecting a reassessment of the post-crisis weakness and the hypotheses to explain it," the OBR said.

The outlook for next year was slashed to 1.4 percent from 1.6 percent and the projection for 2019 was trimmed to 1.3 percent from 1.7 percent. The forecast for 2020 was slashed 1.3 percent from 1.9 percent.

The OBR attributed the projected slowdown in growth to intensified public spending cuts and the adverse impact of Brexit-related uncertainty on economic activity.

"The gentle improvement in underlying productivity growth and a small cyclical boost as spare capacity is brought back into use are expected to deliver slightly higher GDP growth in 2021 and 2022," the agency said.

Growth is seen picking up to 1.5 percent in 2021 and to 1.6 percent in 2022.

Inflation is expected to peak in the current quarter and then ease for some months to reach the Bank of England's 2 percent target over the next year and a half.

The UK's budget deficit is forecast to rise fractionally this year to 2.3 percent of GDP and ease to 1.8 percent next year and remain below 2 percent over the forecast horizon until 2022-23.

The borrowing forecast for this year was lowered to GBP 49.9 billion from GBP 58.3 billion seen in March. The figure was forecast to reach GBP 25.6 billion in 2022-23, the lowest level in two decades.

Debt was forecast to peak at 86.5 percent of GDP this year and to fall to 79.1 percent in 2022-23.

"The first sustained decline in debt in 17 years," Hammond said.

Other measures announced by the chancellor included a GBP 1.5 billion package to improve the delivery of the Universal Credit benefits and a 4.4 percent increase in the National Living Wage to GBP 7.83 an hour.

He also announced that the minimum excise duty on cigarettes will rise, while the alcohol duty will be frozen.

The budget also allocated billions of pounds to the NHS and funds to launch pilot schemes to eradicate rough sleeping by 2027.

The chancellor also allocated total of at least GBP 44 billion of capital funding, loans and guarantees over the next five years to support the housing market.

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