Published: Wed, October 09, 2019
Money | By Brett Sutton

British economy would considerably worsen amid no-deal Brexit, says institute

British economy would considerably worsen amid no-deal Brexit, says institute

"The Government is now adrift without any effective fiscal anchor", he said.

IFS director Paul Johnson urged the prime minister to resist slashing taxes in the next budget after predicting that the deficit will climb to above £50bn next year, more than double the latest forecast by the Office for Budget Responsibility (OBR).

The figures have been released as the IFS compiles its Green Budget, which examines the challenges that chancellor Sajid Javid will contend with as he prepares for his first Budget in post.

But even before the cost of a possible no-deal Brexit is factored in, the think tank said the government was set to break its own spending rules.

Even then, the economy would still enter recession in 2020, the IFS said in an annual assessment of the public finances.

It will continue to closely monitor the effects of the temporary tariff regime on the United Kingdom economy and has announced an exceptional review process will be used to make changes to the temporary tariff regime if necessary after exit day.

According to a new report, entitled The IFS Green Budget 2019, by think tank the Institute for Fiscal Studie in association with Citi and the Nuffield Foundation, a no-deal Brexit would push United Kingdom debt to its highest since the 1960s as borrowing was likely to rise to £100bn ($122.9bn) and total debt would soar to 90% of national income.

Now a large majority of the UK's dairy exports go to the European Union market, but in the event of a no-deal Brexit scenario the bloc would impose their WTO tariffs on these products.

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In the case of a no-deal Brexit, it should implement "carefully targeted and temporary tax cuts and spending increases where it can effectively support the economy", he said.

The think-tank projected that an increase in public spending in 2020 may be followed by an economic downturn as the government would have to face the consequences of a smaller economy with a larger debt.

Prime minister Boris Johnson has also emphasised the importance of government spending programmes being temporary, should the economy not perform as well as expected.

He said that in the event of no-deal, any measures to support the economy would have to be strictly temporary. A further delay to Brexit would extend the uncertainty weighing on investment and growth, it said.

Commenting on the change to lorry import taxes, Meredith Crowley, an economist specializing in global trade from the University of Cambridge, said the UK's heavy goods industry is facing "some difficulty with Brexit".

"Business investment is up to 20% lower than it would otherwise have been, hurting productivity and wage growth", he said.

"From a growth perspective, a Brexit deal is a little better, leaving growth at 1.5%, but it would leave no chance of Brexit being cancelled", he said.

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