‘Dire’ UK budget puts aside €3bn Brexit extra

Sterling seesawed and UK housebuilding shares slid yesterday after a UK budget statement that was seen by investors as bleak but not dramatically changing the outlook for the UK’s Brexit-bound economy.

The UK slashed its economic growth forecasts and expects to borrow a lot more going into the next decade, Chancellor Philip Hammond said, but he nonetheless plans to spend more in the next couple of years to offset the impact of Brexit. In a rebuff to his Brexit critics, Hammond earmarked an extra £3bn (€3.4bn) to ready the UK for leaving the EU.

He also committed £44bn to provide funding, loans and guarantees over five years in a bid to deliver 300,000 net additional homes per year on average by the mid-2020s, addressing the UK’s acute housing shortage.

UK councils will be able to double an annual charge paid by homeowners who leave their properties empty, in a new levy which could hit foreign buyers.

Hammond announced measures abolishing stamp duty for first-time buyers on the purchases of homes worth up to £300,000 (€338,470), keeping a freeze on fuel duty and spending more on the health service.

However, shares in UK housebuilders took a knock on the prospect of an investigation into the landbanks built up in recent years, said IG’s Chris Beauchamp.

“We took over an economy with the highest budget deficit in our peacetime history,” Hammond told parliament.

“Since then, thanks to the hard work of the British people, that deficit has been shrinking and next year will be below 2%. But our debt is still too high,” he said.

However, the UK’s official budget watchdog said the spending plans for the next two years were a “significant giveaway” as Hammond sought to cushion the Brexit slowdown.

Sterling initially fell as Hammond announced the gloomy forecasts for the UK economy but rose later against the dollar.

However “it doesn’t matter what he (Hammond) says about new initiatives, tax and spend”, said Daiwa’s head of economic research, Chris Scicluna, adding that the UK growth outlook was “dire at a time when the world economy is enjoying a synchronised upswing”.

At a time when inflation has risen sharply and wages have grown only slowly, many UK voters are increasingly angry about years of spending cuts in many areas of public services, something Hammond acknowledged in his speech.

“We understand the frustration of families where real incomes are under pressure,” he said. He also sought to help businesses by slowing the rise in business rates and he raised an R&D tax credit. However, the limitations on Hammond were clear as he said the war chest he wants to keep in reserve had almost halved in size to £14.8bn.

The UK’s budget forecasters now expect GDP will increase 1.5% in 2017, compared with an earlier forecast of 2%, reflecting a slowdown this year as the Brexit vote weighed.

The UK is expected to run a budget deficit of 1.3% of GDP by the 2021-2022 financial year, almost double the previous estimate.

The UK will, however, reprivatise bailed-out lender RBS —which owns Ulster Bank — by selling £15bn of shares, in a bid to boost Hammond’s coffers.

Reuters and staff of Irish Examiner

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