Britain’s consumers and businesses are holding back from spending owing to uncertainty surrounding Brexit negotiations, the country’s finance minister said on Wednesday.
“My general view on the economy is that it is fundamentally robust,” Chancellor of the Exchequer Philip Hammond told a cross-party panel of MPs.
“However, the cloud of uncertainty over current negotiations is acting as a temporary dampener and we need to remove it as soon as possible to make some progress,” Hammond told the Treasury Select Committee.
“There is plenty of anecdotal evidence that businesses and consumers are waiting to see what the outcome is before firming up investment decisions and consumption decisions,” the chancellor added.
His comments came one day after the International Monetary Fund said the UK economy would slow to 1.7-percent gross domestic product growth this year from 1.8 percent in 2016 — and slow to 1.5 percent GDP growth next year.
The European Union and Britain clashed Monday after British Prime Minister Theresa May said the ball was in the EU’s court as Brexit negotiations entered a critical fifth round.
Talks have stalled on all three of the key divorce issues — the bill Britain must pay for exiting the EU, the rights of the bloc’s citizens living in Britain, and the fate of the border between the UK province Northern Ireland and eurozone member Ireland.
The UK fiscal watchdog on Tuesday warned that British productivity growth is lower than previously forecast, dealing a blow to May’s Conservative government before Hammond delivers a key budget next month.
The Office for Budget Responsibility added that it would “significantly” reduce its estimate for productivity growth over the next five years — which will hit forecasts for economic growth and public finances.
Productivity refers to the average level of output produced per worker or per hour.
Hammond told the committee Wednesday that issues holding back productivity growth include under-developed infrastructure in the public sector and a skills shortage among workers.
But he pointed also to an issue he viewed as unique to Britain compared to other leading economies.
“We do have a fundamental underlying problem about productivity growth in the UK economy,” the chancellor told MPs.
“The UK distinctive issue is regional disparity. I’ve got no doubt in my mind that the staggering disparity between regional productivity performance is a major drag on the UK economy overall.
“It’s also a major social issue for us in the UK. There is no other developed economy that has such a large productivity performance gap between its capital city and its second and third city.”