UK heading for forecast-busting public borrowing, warns PwC
Britain will overshoot public borrowing forecasts by £100 billion by 2021 unless the Government introduces key policy changes that will offset the effects of the Brexit vote, a new report claims.
Professional services firm PwC says it expects public borrowing to be "persistently higher" than the Office for Budget Responsibility's (OBR) March forecasts due to the net impact of the EU referendum, with the budget deficit already set to overtake projections by £10 billion at £67 billion this year.
Assuming there are no major policy changes, the public borrowing overshoot would hit £25-30 billion around 2019/2020, cumulatively reaching about £106 billion over the five-year period to 2020/2021.
PwC said the OBR's projections have not taken into account the effect of the Brexit vote, and were in place before the new Government took power.
"Since then, however, not only has the deficit not fallen as fast as hoped during the first half of 2016/17, but the Brexit vote has dampened growth projections for the next few years," the report explained.
PwC expects UK growth to slow to around 1.2% next year, as increased political and economic uncertainty drags on investment, and a weaker pound weighs on consumer spending.
The report comes just a week ahead of the Autumn Statement, which will see Chancellor Philip Hammond outline the Government's fiscal policies.
Mr Hammond previously indicated that he could take advantage of the cheap cost of borrowing to push fresh investment into the UK in the hope of bolstering productivity.
The move would be a departure from the economic direction plotted by former chancellor George Osborne, whose aim of achieving a budget surplus by 2020 was scrapped by Prime Minister Theresa May.
While few details have been announced ahead of the Autumn Statement, Chancellor Hammond is widely expected to boost public investment in light of the effects of the Brexit vote.
PwC says that while Brexit "poses clear risks" to Britain's trading position, there are opportunities that leaders should take advantage of in the wake of the referendum.
Andrew Sentance, a senior economic adviser at PwC, said: "The challenge for UK policymakers is to maximise trade opportunities through securing good access to the Single Market even if it is no longer a member.
"Focusing on trade promotion in key non-EU markets like North America, Asia, the Middle East and Africa rather than waiting for free trade deals with these regions will be key, though there is a risk that the world trade environment could be affected by US policy changes under the new presidency.
"Boosting competitiveness by pursuing supply side reform at home linked to increased investment in housing, infrastructure and vocational skills should also help."