Chancellor cuts growth forecasts, announces £23bn 'productivity fund'

Finance minister Philip Hammond said June's referendum result made it "more urgent than ever" to invest in tackling Britain's long-term weaknesses, such as productivity growth that is among the slowest of rich nations.

The Office for Budget Responsibility, Britain's independent budget forecasters, said gross domestic product would grow by 1.4 percent in 2017, down from an estimate of 2.2 percent made in March, before voters chose to leave the EU.Hammond, announcing the first detailed economic plans of May's government, said the OBR believes uncertainty about Britain's trading relationships with its EU neighbors - who buy almost half the country's exports - will cut growth by 2.4 percentage points over coming years.Hammond said the OBR now saw economic growth in 2018 at 1.7 percent compared with March's forecast of 2.1 percent.

On the public finances, the OBR forecast the Chancellor to overshoot previous targets for public sector borrowing for this year, revising its outlook from £55.5 billion to £68.2 billion for 2016/17.

The Chancellor was also criticised by Labour and the Local Government Association for failing to provide money for social care, as well as not going far enough in the watering down of the Universal Credit cuts.

In the aftermath of the referendum, his predecessor George Osborne had wisely abandoned plans to deliver a budget surplus by 2020.

About half of that budget black hole - or £58.7 billion - is a direct effect of Britain's decision to leave the European Union, according to the OBR, which blamed factors including lower migration, slower productivity growth and higher inflation.

Growth in 2018 is expected to be 1.7%, down from the 2.1% forecast in March, and is predicted to return to the 2.1% rate previously forecast in 2019.

Following slightly better than expected growth this year, gross domestic product was expected to expand by just 1.4 per cent in 2017. He has given himself some wiggle room, and uncertainty about the outcome of Brexit negotiations means he may need it. "And we would not in any event wish to base our forecast on assumptions we could not be transparent about".

OBR chairman Robert Chote said this would prove "quite a challenge" for the Chancellor if he needs to borrow more during this Parliament.

Much of the slowing predicted by the OBR is due to rising inflation as a result of the weakness of the pound.

Hammond began his speech with a robust defence of the economy's performance following the June 23 referendum, saying it had "confounded commentators at home and overseas with its strength and resilience since the British people decided, exactly five months ago today, to leave the European Union and chart a new future for our country". In 2017 borrowing is expected to be £59 billion, compared with the March forecast of £38.8 billion.

It concludes that the vote to leave the European Union will cut growth by reducing migration, slowing the growth of productivity and increasing inflation.

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