Downbeat Philip Hammond offers little to soothe economic fears

The autumn statement is, as Philip Hammond put it, one of the two big "fiscal events" in the British political calendar, an opportunity for the chancellor to soothe the public amid economic turbulence or to pull a political rabbit out of the hat.

Hammond made clear from the start on Wednesday that he would perform no such therapeutic function, and he ended his speech by announcing that he was abolishing the autumn statement altogether.

His announcements may have been downbeat, but they were none the less remarkable, exposing the damage Brexit is wreaking on the economy even before Britain actually leaves the EU.

The figures released later by the Office for Budget Responsibility (OBR) were starker still, estimating that the chancellor will have to borrow £122 billion (€144 billion) more over the next five years than previously expected.

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The OBR, a public body which provides independent economic forecasts to the government, attributes £58.7 billion of the extra borrowing directly to Brexit.

The reason Hammond will need to borrow more is that economic uncertainty and inflation will depress growth and push down tax revenues. In one bitter irony, an expected fall in immigration will make the fiscal situation worse; in another, the falling pound will mean that Britain’s contribution to the EU budget will go up from 2018.

Hammond put a brave face on his abandonment of the Conservative government’s target of balancing the budget by 2020. But it will be harder to brush off the forecast that Britain’s debt is set to rise to 90 per cent of GDP, the highest level for half a century and worse than during the great recession of 2008 or even the oil crisis of the 1970s.

Despite extra infrastructure spending, there was little help on offer for those, to use Theresa May’s celebrated term, “just about managing” – or Jams. And the infrastructure package fell well short of the industrial strategy May has promised since taking office.

The prime minister has already retreated from one plank of her new compact with “ordinary working people”, abandoning her proposal to oblige companies to appoint worker-directors to their boards.

According to the OBR, the squeezed middle will be squeezed further next year as inflation wipes out the value of wage increases.

Gloomy outlook

“The fall in the pound will squeeze households’ real incomes by pushing up import prices. We expect the pound’s fall to add almost 2 per cent to the level of consumer prices over the next two years, relative to our March assumption. Real earnings growth will consequently fall close to zero next year. That squeeze is expected to hold back real private consumption growth in 2017 and 2018,” it said.

The big question is whether the gloomy economic outlook will strengthen the hand of those who are arguing for Britain to retain the closest possible relationship with the EU after Brexit.

In recent weeks, all the political pressure has been driving the government in the opposite direction, towards a “hard Brexit” that would mean leaving the single market and the customs union.

The figures released on Wednesday offer a strong argument for reducing economic uncertainty by seeking a softer disentanglement from the EU.

MPs are not yet ready to resist the siren call of the hard Brexiteers, however, and with attitudes hardening in Brussels, they are in danger of finding their voice too late.