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Asean & Global Updates
POSTED | 16:44 PM | 11-03-2018

Gloom on British economy

The European Commission has delivered a damning assessment of the British economy, undermining attempts by the chancellor to signal the end of austerity this week, The Sunday Times reported today (March 11, 2018).

Philip Hammond claimed last night that the economy was “at a turning point” and that, after eight years of belt-tightening, “I am confident that there is light at the end of the tunnel” — a signal that ministers are prepared to put more money into public services.

But the EU’s annual assessment of the British economy paints a different picture. A leaked copy of the paper seen by The Sunday Times makes dire predictions for growth that are lower than those provided by the independent Office for Budget Responsibility (OBR), which help to determine Treasury plans.

“Economic growth in the UK has slowed markedly since the start of 2017,” the report says. “GDP growth is expected to remain subdued, slowing gradually to 1.3% in 2018 and to 1.1% in 2019.”

The report blames “the squeeze on real disposable incomes” and “stagnation of labour productivity.” At the time of the budget last November, the OBR predicted growth of 1.4% this year and 1.3% in 2019.

The paper, to be published soon, also makes grim reading on living standards. While praising a buoyant jobs market, it says wage growth is moderate, wealth inequality is “high and rising” and household indebtedness remains high.

The leak will heighten tensions between Brussels and Westminster as Brexit negotiations reach crunch point. It also comes at an embarrassing time for the government, days before Hammond is due to give his spring budget statement.

Ten days ago it was revealed that everyday government spending — not including capital investment — is now balanced by tax receipts.

Hammond is expected to announce this week that borrowing will be £10billion lower this year than previously forecast, though he will not make announcements about tax and spending until the autumn budget.

Last night he said the government’s approach had meant “we can spend more on public services instead of debt interest, and enabled people to keep more of what they earn.”

He added: “Thanks to the hard work of the British people, we’re now at a turning point. Over the last two quarters we have seen the first signs that productivity growth — the key to higher wages — may be increasing and this year we are forecast to see the beginning of the first sustained fall in debt for a generation. It has been a long road and there is still work to be done, but I am confident that there is light at the end of the tunnel.”

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