Rachel Reeves has blamed a heavier than anticipated blow from Brexit and austerity for forcing her to take action to balance the books at next month’s budget. The chancellor said leaving the EU was turning out to have caused more damage than official forecasters had previously outlined.
Speaking at an investment summit in Birmingham, Reeves said the Office for Budget Responsibility (OBR) would be “pretty frank” about the impact of Brexit, austerity and cuts to capital spending. “That is why we are unashamedly rebuilding our relations with the EU to reduce some of those costs, that in my view were needlessly added to businesses since 2016,” she added.
The OBR is understood to have handed sharply downgraded forecasts to the chancellor, fuelled by a stark reassessment of Britain’s productivity growth, soaring borrowing costs and the financial hit from high-stakes welfare U-turns. Official figures on Tuesday showed government borrowing over the first six months of this financial year was £99.8bn, £7.2bn more than forecast in March.
Meanwhile, economists predict UK inflation rose to 4% in September, double the government’s 2% target. Reeves is expected to chair a cabinet meeting on Thursday to ask departments what they can do to tame inflation, with a Treasury source saying “everything is on the table – including measures to bring down energy bills”.
The chancellor is widely expected to announce tax increases and spending cuts at the budget on 26 November in response to a shortfall in government finances that could reach up to £40bn. At the heart of the OBR’s downgraded forecasts is a sharp cut in Britain’s productivity performance, which has flatlined since Brexit. The forecaster has previously said leaving the EU would reduce long-term productivity by about 4%.
