UK debt to rise above 90 per cent of GDP as growth slows due to Brexit

Philip Hammond - Image credit: Kirsty Wigglesworth/AP/Press Association Images

The UK’s debt will rise to over 90 per cent of GDP in 2017, according to figures from the Office of Budget Responsibility (OBR) announced today in the Chancellor’s autumn statement.

Debt will peak at a 50-year high of 90.2 per cent of GDP in 2017-18, a six point rise from 84.2 per cent last year, and three points more than the this year’s 87.3 per cent, before falling slightly to 89.7 per cent in 2018-19, according to OBR forecasts.

The OBR also predicts that growth will be 2.4 percentage points lower than it would otherwise have been because of Brexit.

Its growth forecast is for 2.1 per cent in 2016, higher than it predicted in March, but slowing to 1.4 per cent in 2017.

This is attributed to lower investment and weaker consumer demand as a result of greater economic uncertainty and higher inflation about by the drop in the value of the pound.

“That’s slower, of course, than we would wish, but still equivalent to the IMF’s forecast for Germany, and higher than the forecast for growth in many of our European neighbours, including France and Italy,” the Chancellor noted.

Growth is predicted to begin recovering to 1.7 per cent in 2018, 2.1 per cent in 2019 and 2020, and two per cent in 2021 as uncertainty over Brexit begins to reduce.

Public sector borrowing is set to be £68.2bn, or 3.5 per cent of GDP, this year, a drop from £74bn last year.

It is predicted to continue falling, to £59bn next year, dropping annually, finally reaching £17.2bn, equivalent to 0.7 per cent of GDP in 2021-22.

George Osborne had intended to eliminate the deficit completely and achieve a budget surplus, initially by the end of the last parliament, then by 2020, but repeatedly missed borrowing targets.

The current chancellor, Philip Hammond, instead introduced a new draft Charter for Budget Responsibility, which consists of three fiscal rules.

Firstly, he said, public finances should be returned to balance as early as possible in the next parliament and borrowing should be below two per cent by the end of this parliament.

The second was that net public sector debt must be falling by the end of this parliament.

Thirdly, the Chancellor said that welfare spending must be within a cap set by the UK Government and monitored by the OBR.

He confirmed that the Government has no plans to introduce further welfare savings in the current parliament beyond those already announced.

As part of recovery, the Chancellor highlighted the need to address productivity.

“The productivity gap is well known, but shocking nonetheless,” he said.

“We lag the US and Germany by some 30 percentage points. But we also lag France by over 20 and Italy by eight.

“Which means in the real world, it takes a German worker four days to produce what we make in five, which means, in turn, that too many British workers work longer hours for lower pay than their counterparts.

“That has to change if we are to build an economy that works for everyone.”