Friday

18th Aug 2017

Brexit to hike British debt by €69bn

  • British government will have to maintain austerity in the light of Brexit costs (Photo: Jaypeg)

Britain’s decision to exit the EU is to prompt €69 billion (£59bn) of extra borrowing, a UK watchdog has said, leaving poorer families less well off.

The Office for Budget Responsibility (OBR), a fiscal watchdog created six years ago, said in London on Wednesday (23 November) that the extra money would be needed over the next five years.

Thank you for reading EUobserver!

Subscribe now and get 40% off for an annual subscription. Sale ends soon.

  1. €90 per year. Use discount code EUOBS40%
  2. or €15 per month
  3. Cancel anytime

EUobserver is an independent, not-for-profit news organization that publishes daily news reports, analysis, and investigations from Brussels and the EU member states. We are an indispensable news source for anyone who wants to know what is going on in the EU.

We are mainly funded by advertising and subscription revenues. As advertising revenues are falling fast, we depend on subscription revenues to support our journalism.

For group, corporate or student subscriptions, please contact us. See also our full Terms of Use.

If you already have an account click here to login.

“The economy has not slowed as sharply as some forecasters feared in the wake of the referendum vote to leave the European Union, but it has slowed, and the outlook is weaker”, the OBR’s chairman, Robert Chote, said.

“We expect the quarterly growth rate of GDP to continue slowing into next year, as uncertainty over the UK’s future trade and migration regime delays business investment and as the fall in the pound squeezes real consumer spending by pushing up inflation”, he added.

The OBR had predicted growth of 2.2 percent in 2017 prior to the Brexit vote, but now forecast just 1.4 percent. It said Brexit would probably wipe out 2.4 percent of potential growth over the next five years.

That meant that the British treasury would have to abandon previous fiscal targets, the OBR said, with public debt expected to peak at 90 percent of GDP next year and with the budget deficit to remain high at 3.5 percent of GDP.

The OBR also said that “the negotiation of new trading arrangements with the EU and others” would “slow the pace of import and export growth for the next 10 years”.

Philip Hammond, the British treasury chief, told parliament the same day that he would have to continue welfare cuts in light of the figures.

He said he could only afford modest handouts to “just about managing families” and that he might have to “review” other promises on pensions.

He also said British workers would have to strive harder to compete with EU firms.

The Brexit vote “makes more urgent than ever the need to tackle our economy’s long-term weaknesses”, he said.

“In the real world, it takes a German worker four days to produce what we make in five … That has to change”, he said.

He told MPs that the British economy had “confounded commentators at home and abroad with its strength and its resilience” since the Brexit referendum in June, however.

He also indicated that Britain would maintain defence and development aid spending at current levels.

“We will meet our commitments to protect the budgets of key public services and defence. We will keep our promise to the world’s poorest”, the chancellor said.

“We are a great nation … Confident in our strengths,” he added.

Opposition MPs, such as Ed Miliband, the former leader of the opposition Labour Party, sad the OBR forecast was a “salutary warning” of what to expect if the UK failed to negotiate good terms with the EU.

“Isn’t it a very strong argument for us to remain as close as possible to our largest trading area, the single market, and inside not outside the customs union?”, Miliband said.

John McDonnell, Labour’s shadow chancellor, said the rising debt and welfare cuts showed the government’s “abject failure” to handle the situation.

The UK has pledged to start EU exit talks at the end of March in a process that is to last at least two years.

The government’s lack of clarity on whether it would stay in the single market or make a “hard exit” in order to curb EU immigration has also prompted criticism.

The OBR, on Wednesday, asked for “a formal statement of government policy as regards its desired trade regime and system of migration control”.

The Irish economy is also expected to suffer Brexit fallout.

The Economic and Social Research Institute, a think tank in Dublin, said on Wednesday that Irish exports to the UK would fall steeply if Brexit led to new UK-EU trade tariffs.

It said Irish exports to the UK, especially in the food sector, could drop by up to 30 percent.

It said overall exports would be likely to fall by 4 percent a year, resulting in an annual cash loss of €4.5 billion.

Britain can't pick and choose Brexit deal, MEPs say

Leaders of the European Parliament said they won't accept any deal that hurts the free flow of people within the EU single market after their first meeting with British Brexit minister, David Davis.

Magazine

Brexit by accident

The British vote to leave the EU was, in large part, the product of neglect and circumstance. But it is also too late to put the genie back in the bottle.

UK will have to pay beyond Brexit, EU warns

The EU's budget commissioner confirmed the bloc's position that the UK would need to keep paying for previously agreed programmes, while a new €40-billion divorce bill is making waves in the British media.

EU agency relocation race starts with 23 cities

Cities from 21 countries have applied to host the two London-based EU agencies, which will have to be relocated after Brexit, with Luxembourg throwing its hat in for the banking authority.

News in Brief

  1. Macedonia sacks top prosecutor over wiretap scandal
  2. ECB concerned stronger euro could derail economic recovery
  3. Mixed Irish reactions to post-Brexit border proposal
  4. European Union returns to 2 percent growth
  5. Russian power most feared in Europe
  6. Ireland continues to refuse €13 billion in back taxes from Apple
  7. UK unemployment lowest since 1975
  8. Europe facing 'explosive cocktail' in its backyard, report warns

Stakeholders' Highlights

  1. European Healthy Lifestyle AllianceDoes Genetics Explain Why So Few of Us Have an Ideal Cardiovascular Health?
  2. EU2017EEFuture-Themed Digital Painting Competition Welcomes Artists - Deadline 31 Aug
  3. ACCABusinesses Must Grip Ethics and Trust in the Digital Age
  4. European Jewish CongressEJC Welcomes European Court of Justice's Decision to Keep Hamas on Terror List
  5. UNICEFReport: Children on the Move From Africa Do Not First Aim to Go to Europe
  6. Centre Maurits CoppietersWe Need Democratic and Transparent Free Trade Agreements Says MEP Jordi Solé
  7. Counter BalanceOut for Summer, Ep. 2: EIB Promoting Development in Egypt - At What Cost?
  8. EU2017EELocal Leaders Push for Local and Regional Targets to Address Climate Change
  9. European Healthy Lifestyle AllianceMore Women Than Men Have Died From Heart Disease in Past 30 Years
  10. European Jewish CongressJean-Marie Le Pen Faces Trial for Oven Comments About Jewish Singer
  11. ACCAAnnounces Belt & Road Research at Shanghai Conference
  12. ECPAFood Waste in the Field Can Double Without Crop Protection. #WithOrWithout #Pesticides

Latest News

  1. UK’s childhood obesity strategy, a blueprint for EU countries?
  2. Death toll rising from Barcelona attack
  3. Austrian soldiers to stop migrants from Italy
  4. Chinese road to riches or road to ruin?
  5. UK seeks 'unprecedented' Irish border deal
  6. Merkel: No EU sanctions on migrant quota rebels
  7. UK keen to keep old EU customs deal
  8. Italy backs Libya as NGOs chased out of Mediterranean