(Bloomberg) -- Chancellor of the Exchequer Philip Hammond said the U.K. economy will grow faster than previously forecast in 2017, though less quickly over the next three years, as he set the course for government spending with Britain preparing to leave the European Union.
Opening his Budget speech in Parliament on Wednesday, Hammond said the Office for Budget Responsibility now sees 2017 economic growth of 2 percent compared with the 1.4 percent it predicted in November. He argued that Britain is well placed to weather the challenges as Prime Minister Theresa May prepares to trigger formal talks with the EU later this month, even as the latest prediction still lags the forecast of 2.2 percent made a year ago before Britain voted to quit the bloc.
The budget deficit will be 51.7 billion pounds ($62.9 billion) for 2016-17, Hammond said, compared with the 68.2 billion pounds forecast in November. The OBR forecasts project a cut in borrowing of 23.5 billion pounds over the next five years.
The U.K. “has continued to confound the commentators with robust growth and a labor market delivering record employment,” Hammond told lawmakers in the House of Commons in London. “As we start our negotiations to exit the European Union, this Budget takes forward our plan to prepare Britain for a brighter future,” he said. “We are building the foundations of a stronger, fairer, more global Britain.”
The pound was 0.2 percent lower at $1.2173 as of 1:46 p.m. London time. It earlier fell to $1.2139, the weakest since Jan. 17, the day of May's major speech laying out her plans for Brexit.
In spite of the positive outlook presented by the chancellor, households are starting to feel squeezed by soaring food and fuel costs -- the result of the depreciating pound -- and Britons are facing years of continued austerity as Hammond seeks to balance the books in the next parliamentary term, which starts in 2020.
‘Cutting Edge'
“We must focus relentlessly on keeping Britain at the cutting edge of the global economy,” Hammond said. “The deficit is down, but debt is still too high. Employment is up, but productivity remains stubbornly low.”
Employment is set to continue to grow in every year of the forecast, Hammond said, citing the OBR estimates.
The chancellor announced few significant measures, but there was help for small traders hit by increases in business rates, an issue that has been repeatedly raised by lawmakers from Hammond's own Conservative Party. Measures included caps on charges, discounts for 90 percent of pubs and a 300 million-pound fund for local governments to assist the hardest-hit businesses.
In another move in response to lobbying from both Conservatives and the opposition Labour Party, Hammond committed an additional 2 billion pounds over three years for social care to relieve pressure on the state-run National Health Service by allowing elderly patients to leave hospitals.
Cash has also been earmarked for schools and technical training, while extra funding is being channeled to innovation as part of measures to boost productivity, the chancellor said.
Sugar Tax
Income from a tax on sugary drinks has fallen short of expectations, the chancellor said, as manufacturers reformulate their products. The 1 billion pounds promised to school sports from the levy by 2020 will still be delivered despite the shortfall.
Labour leader Jeremy Corbyn attacked Hammond for his inaction.
“This was a budget of utter complacency about the state of our economy, utter complacency about the crisis facing our public services and complacent about the reality of daily life for millions of people in this country -- entirely out of touch with that reality of life for millions,” Corbyn told lawmakers. “The chancellor made his boast about a strong economy. But who is reaping the rewards of this economy? For millions it is simply not working.”'
--With assistance from Samuel Dodge Svenja O'Donnell Tim Ross Robert Hutton and Andrew Atkinson
To contact the reporters on this story: Thomas Penny in London at tpenny@bloomberg.net, Alex Morales in London at amorales2@bloomberg.net.
To contact the editors responsible for this story: Alan Crawford at acrawford6@bloomberg.net, Eddie Buckle
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