Brexit weighs on economic growth in Britain: budget watchdog

Source: Xinhua| 2017-10-11 02:23:11|Editor: yan
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LONDON, Oct. 10 (Xinhua) -- The effects of Brexit have weighed on British economic growth, according to the economic watchdog the British Office of Budget Responsibility (OBR) on Tuesday.

"The initial Brexit effect does seem to be broadly in line with expectations. GDP growth has slowed noticeably coming into 2017," said Robert Chote, chairman of the OBR, told journalists at a press conference in central London on Tuesday afternoon.

Chote was speaking at the annual assessment of the accuracy of economic forecasts from his body the OBR, which is the UK fiscal statistics watchdog.

UK GDP growth now stands at 0.3 percent quarter on quarter, having fallen from 0.6 percent growth in the second quarter of 2016 when the Brexit referendum vote was held in June last year.

The OBR had also made assumptions in its economic models of reduced migration into Britain as a result of the Brexit vote, and that had been seen in statistics of inward migration, said Chote. This will also impact on economic growth.

"We assumed that leaving the European Union (EU) would result in a net inward migration fall," he said. "To begin with this would represent an income fall back, as the fall in the pound reduces the value of wages in the workers' home countries."

"And then we also assume the UK will move to a tighter migration regime. Latest figures suggest immigration is falling in response to a reduced pull factor," he said.

The OBR said that evidence so far this year showed that its presumptions about UK productivity made in March this year at the time of the last Budget by British Chancellor of the Exchequer Philip Hammond were too optimistic about productivity.

The OBR figures are used as the basis for government budget projections, and any revision in the figures will have an impact.

A recognition that productivity figures are wrong and that productivity improvements are likely now not to occur as predicted in OBR forecasts will affect government policy decisions.

The OBR said in its March forecast that trend productivity growth would rise slowly to reach an annual rate of 1.8 percent in 2021, somewhere not far from long-term trend growth.

But the rate of labour productivity as measured by output per hour fell by 0.1 percent in the three months to June, according to the British Office for National Statistics (ONS), which has recorded negative growth in productivity this year so far.

"Our assumption that productivity growth would return to a more normal rate within a few years reflected a judgment that whatever factors were depressing it in the wake of the financial crisis would fade as it receded further into the past," Chote said.

"But as the period of weak performance gets longer, the explanations that people pointed to immediately after the crisis look less convincing and others seem more plausible," he said.

Charles Bean, a member of the OBR committee and professor of economics at the London School of Economics (LSE), said "We are in a world where the labor market looks tighter than it was... you may get some of that labor-market driven pick-up in activity in productivity."

"This is international," said Bean, formerly deputy governor of the Bank of England. "Often people focus on it being bad in the UK, but all of the G7 (Group of Seven) nations have been suffering from this weakness in productivity."

The current five-year forecasts for UK productivity which showed it is returning to its long-term trend of about 2 percent from the early 2020s onwards.

"This is a looking a pretty bold forecast, given the data that has come through," said Bean.