UK economy feels first effects of Brexit vote

The full impact of the Brexit vote becomes to be announced, as the Chancellor revealed that output will shrink, while borrowing increases.

Phillip Hammond quoted the Office for Budget Responsibility's predictions of reductions in economic growth, telling MPs that it is now forecast to be 2.4% lower in 2020 than first predicted, as a result of the June referendum.

The Office for Budget Responsibility was forced to revise down its prediction made before the Brexit vote that GDP would rise 2.2% next year. It now sees the economy expanding by only 1.4% and warns there will be a knock-on effect on the public finances.

Hammond said on Wednesday the government would cut the country’s budget deficit, excluding investment spending, to below 2% of gross domestic product by the end of the current parliament in 2020.

The OBR noted that Britain will borrow an extra £122bn on top of what was expected – of which £58.7bn is a direct cause of the uncertainty created by leaving the EU. Of that money, around £16bn will be caused by lower immigration, because more migrants would have delivered an economic boost.

Hammond was a member of the Remain party, and warned the public earlier in the year of the "chilling effects" Brexit could have. During the Autumn Statement, he made it clear that the effect on Britain's economy was the price to pay for the Leave voters.

He did say that the independent Office for Budget Responsibility "cannot predict the deal the UK will strike with the EU," but added: "Its current view is that the referendum decision means that potential growth over the forecast period is 2.4 percentage points lower than would otherwise have been the case."

However, some politicians believe that the forecasts are too downbeat. Ex-minister Iain Duncan Smith claimed that the Office for Budget Responsibility "hasn't got anything right," while the Economists for Brexit group predicted more "humiliating U-turns" from the OBR.