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UK May Borrow Extra $25b to Fill Financial Black Hole

UK May Borrow Extra $25b to Fill Financial Black HoleUK May Borrow Extra $25b to Fill Financial Black Hole

The British Chancellor George Osborne could be forced to borrow an extra £19 billion ($25.2 billion) this year to fill a black hole created by Brexit chaos, economists have warned.

City watchers slashed their forecasts for Britain’s economy almost immediately after the vote to leave the European Union.

The slowdown will mean lower tax receipts for the treasury, which may have to reverse cuts to public spending to soften the economic blow, ThisIsMoney reported.

Samuel Tombs, chief UK economist at research firm Pantheon Macroeconomics, expects government borrowing to hit £75 billion this financial year, up from the treasury’s forecast in March of £56 billion. Tombs predicts a ‘mild recession’ over the next six months.

He said: “The slowdown will add at least £10 billion if not more to borrowing. Over and above that I would expect a new chancellor to get rid of some of the spending cuts.”

Senior conservatives appeared to signal a loosening of austerity last week by dropping the target to hit a budget surplus by 2020. But it is unclear if that would mean unwinding planned spending cuts.

Tombs said that with low interest rates there was no sign that investors would stop buying UK government debt. But he warned that the ratio of government debt to GDP could climb to 90% from 80% today.

Gross domestic product is a measure of a country’s economic activity and Tombs said: “That is diminishing our ability to deal with future crises and saddling the next government with higher interest payments.”

Economists have taken a gloomy view of Britain’s future outside the EU. The Institute for Fiscal Studies predicts public finances will be £20 billion to £40 billion a year worse off by 2019-20, depending on Britain’s exit deal.

Carl Emmerson, IFS deputy director, said: “Our analysis concluded that a chancellor would borrow more over this parliament, live with longer deficits and plan a bit more austerity in 2021 to 2022.”

Economists in favor of Brexit have argued that deregulation and new trade deals will boost growth. Roger Bootle, founder and chairman of consultancy Capital Economics, said that the benefits of Brexit would come after two to five years.

Prominent Indian businessmen in the Persian Gulf Arab region have also said that Britain may reap the benefits of Brexit in the short and medium term from the “protectionism” but investors will have to deal with the UK and EU separately, raising complexity in managing economic and political ties.

Financialtribune.com