Chancellor Philip Hammond has abandoned the Government’s target of delivering a surplus in the 2019/20 financial year in the face of economic uncertainty following the UK’s vote to leave the European Union.
In 2019/20, when the Government was supposed to be in surplus it will instead face a deficit of £21.9bn, Hammond said today in the Autumn Statement.
The fiscal deficit will be £68.2bn in the current financial year, falling to £59bn next year, £46.5bn in 2018/19.
Overall public sector net borrowing as a percentage of GDP will fall to 3.5 per cent this year from 4 per cent last year. It will fall to 0.7 per cent by 2021/22.
“This will be the lowest deficit as a share of GDP in two decades,” Hammond says.
The Chancellor said monetary policy had “played an important role in supporting growth” since the Brexit vote, but that a “credible fiscal policy remains essential for maintaining market confidence and restoring the economy to long term health”.
Hammond says: “The OBR’s forecast of higher borrowing and slower asset sales, together with the temporary effect of the Bank of England’s action to stimulate growth, translates into an increased forecast for debt in the near-term.”
Hammond says debt debt as a percentage of GDP will fall to 89.7 per cent in 2018/19 – its first drop since 2001/02. But that is only after it rises from 84.2 per cent last year to 87.3 per cent this year, peaking at 90.2 per cent in 2017/18.
Hammond said “stripping out the effects of the Bank of England interventions” meant underlying debt would peak this year at 82.4 per cent of GDP and then falling to 77.7 per cent by 2021-22.