Belfast Telegraph

UK facing fiscal shocks but Brexit bill not one of them: OBR

By Ben Woods

The Office for Budget Responsibility has said public finances are "much more sensitive" to higher inflation and interest rates as it warned Brexit risks heightening financial shocks.

The fiscal watchdog said it was almost inevitable the UK would face a recession or a financial crisis over the next 50 years and the Government risked putting the nation's finances on an "unsustainable path" if it failed to shore up the deficit during brighter economic times.

Prime Minister Theresa May, who yesterday hosted King Felipe VI of Spain, has vowed to deliver a balanced budget by the middle of the next decade, but is facing increasing pressure to end austerity and increase Government spending.

In its Fiscal Risks report, the watchdog said: "The budget is still in deficit by 2 to 3% of GDP - as it was on the eve of the crisis - and net debt is more than double its pre-crisis share of GDP and not yet falling.

"As a result, the public finances are much more sensitive to interest rate and inflation surprises than they were."

It added the fallout of the UK's future trading arrangements with the EU posed a greater risk to the public finances than the size of a Brexit divorce bill.

While the watchdog wouldn't be drawn on predicting how any trade deal with the 27-nation bloc might impact on the deficit, it said Brexit could exacerbate other risks and fiscal shocks the Government may face.

The OBR said: "The new Government must also manage the risks posed by Brexit.

"These do not supplant the possible shocks and likely pressures that we have already discussed, but they could affect the likelihood and impact of many of them.

"A lot of attention focuses on the possible 'divorce bill', but, while some numbers mooted for it are very large, a one-off hit of this sort would not pose a big threat to fiscal sustainability.

"More important are the implications of whatever agreements are reached with the EU and other trading partners for the long-term growth of the UK economy, which we do not attempt to predict here.

"If GDP and receipts grew just 0.1 percentage points more slowly than projected over the next 50 years, but spending growth was unchanged, the debt-to-GDP would end up around 50 percentage points higher."

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