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The economic damage from Brexit will be up to 10 times the probable boost from the chancellor’s Budget plans to hike public spending, economists warn today.
Sajid Javid’s ambition to dramatically boost growth to 2.75 per cent a year – more than double the current rate – has also been branded “unrealistic” by the National Institute of Economic and Social Research (NIESR).
Instead, it predicts the UK economy will continue to suffer a “slow puncture” after years of low growth, because the dark clouds cast by Brexit will linger.
But in a set of gloomy predictions, NIESR warns the investment boost will take more than a decade to produce an annual GDP gain of only around 0.4 per cent.
And this, in turn, will be dwarfed by the loss of up to 4 per cent from the hard Brexit planned by Boris Johnson, creating new trade barriers with the EU, the UK’s most important market.
“Having promised the electorate both faster growth and a ‘levelling up’ in the economy, it simply cannot be delivered very quickly,” said Professor Jagjit Chadha, NIESR’s director.
“And that may further frustrate a population that demands a significant improvement in economic prospects.
“And yet free trade deals will open up the economy to the gales of competition that will seek to drive down prices in tradeable industries and may, in the short run, further accelerate job losses in those industries.”
In its latest economic review, NIESR forecasts that:
* The 0.4 per cent long-term economic gain from boosting infrastructure spending would be “too little to offset the 3-4 per cent ‘cost’ of Brexit”.
* Even that 0.4 per cent was in doubt because the economy was already “close to potential” – risking an inflationary surge which would have to be choked off with higher interest rates.
* To work, it would also require higher day-to-day spending – for example, to recruit staff for new hospitals and schools.
* However, Mr Javid faced a £10bn shortfall to achieve his target to balance current spending by 2023 – threatening further spending cuts if taxes are held down.
* To achieve 2.75 per cent growth, productivity outside London would have to soar by 3 per cent a year – more than the entire economy achieved over the last 12 years.
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