Finance Experts Believe Cautious UK Budget Overlooks Brexit Worries
UK Chancellor Philip Hammond presented the Spring Budget last week which has been largely termed by experts as modest and safe, although it failed to mention the looming challenge of Brexit.
According to the budget, UK’s economy is expected to grow by two percent this year, faster than the 1.4 percent that had been predicted previously by the Office of Budget Responsibility.
The GDP growth is expected to slow to 1.6 percent in 2018 but will pick up to 1.7 percent in 2019. Inflation will hit 2.4 percent this year before dropping to 2.3 percent in 2018 and then decline further to two percent in 2019.
The government is expected to borrow lesser than anticipated, over next five years it is expected to slash borrowing by £23.7 billion.
Several experts have however highlighted that the budget has failed to take steps to tackle the uncertainty arising from Brexit, adding that Brexit could usher in a recession without successful negotiations.
Ronald MacDonald, professor for macroeconomics and international finance (economics) at the University of Glasgow’s Adam Smith Business School, pointed out that the complexity of trade relationships between EU and UK was poorly understood which was causing an underestimation of Brexit’s impact on UK economy
In a statement Ronald MacDonald said,
The Brexiters are implicitly assuming that everything we trade is the final trade, but the supply chain is crucial to the UK’s industries. If we have to leave the single market and [the Government] cannot sign particular bilateral agreements for these particular industries then I think the kind of recession scenario that economists were predicting in their models [before the EU referendum], we will see that dramatic scenario happening.
Among the more controversial moves in the budget were the decisions to increase the tax for self-employed and elimination of tax exemptions on share dividends for those well-off.
MacDonald questioned the decision to increase direct tax at a time when consumption was proving to be critical to the economy’s growth. He added that he expected the consumption trend to drop off in coming months and that growth is likely to stall as a result of heightening inflation and poor investment levels.
He pointed out that the Chancellor had not proposed any measures to improve productivity levels in the country or the infrastructure investments, two key factors necessary to boost growth. Fraser Campbell, partner at Campbell Dallas said that the lack of incentive for investment in the Budget particularly before Brexit was disappointing.
Some experts believe that Hammond may tackle a few of these pressing issues in the Autumn Budget which would be taking place possibly after the Brexit is triggered.
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