Philip Hammond says economy faces Brexit damage as businesses 'sit on hands'
Leaving the European Union is already hitting Britain’s economy, and the impact could be felt for the next 14 years, Philip Hammond has said.
The Chancellor downplayed early indicators suggesting the result of the referendum has had little effect on growth and said forecasters’ predictions of a slowdown should be listened to.
The referendum campaign was littered with warnings that a Leave vote would harm the UK’s long-term prospects and would also result in an immediate economic shock.
Initial data show the services sector, which accounts for three-quarters of the UK’s output, continued to grow robustly in July – after the referendum.
The Office for National Statistics has also said that the referendum outcome has not had a “major effect” so far.
Mr Hammond, who backed the Remain campaign in the referendum, struck a cautious tone this morning, however, and said businesses were “sitting on their hands” while the UK’s future relationship with the EU was negotiated.
“Despite the good economic data that we’ve had, that is still the central prediction of economic forecasters, that overall leaving the European Union will have a negative effect on economic growth,” the Chancellor told the Today programme.
Asked whether he stood by the Remain campaign’s claim that GDP could be 4% lower by 2030 than it otherwise would be, he replied: “Yes… That’s not a sort of one-off hit that’s going to take the economy into recession or anything like that. This is spread over a period of 15 years in most forecasters’ expectations…
“That’s the central prediction of economic forecasters and we have to take what they say seriously. That doesn’t mean we have to accept it… our job is to try to head off those outcomes, but we can only head them off if we’re honest about the fact that they may be out there and we plan to address them.”
The “uncertainty” over the future arrangements with the EU was having an impact already, Mr Hammond said.
“The way business reacts to uncertainty is to sit on its hands, to wait and see – quite logically,” he explained.
“We’ll have to wait for the hard data, but anecdotally we hear of businesses postponing investment decisions.
“If we don’t do something, if we don’t intervene to counteract that effect, in time that would have an impact on jobs and growth. It’s to make sure that we can intervene to deal with that situation that we need to push back the target for fiscal balance.”
Mr Hammond also commented on the UK’s future relationship with the European Union.
Theresa May yesterday gave her strongest signal yet that it would not include membership of the single market as she stressed her priorities were ending free movement of people and regaining sovereignty from the European Court of Justice.
The Chancellor said this morning: “What we will be doing as we enter negotiations with our European Union partners is seeking the greatest degree of access for British goods and services to support British businesses and British workers that we can possibly achieve…
“I think the key thing is having access without the imposition of tariffs, access without the imposition of quotas, access within an agreed set of rules that makes the trading arrangements fair.
“Remember, this isn’t a one-way trade. We talk about British companies having access to the European markets, but of course European companies and European workers make a lot more stuff that’s being exported to Britain than we export to the European Union. So this will be a reciprocal arrangement, giving access to Britain’s markets for European companies, and Europe’s markets for British companies.”