Sajid Javid’s ambition to dramatically boost growth to 2.75 per cent a year – more than double the current rate – has also been branded “unrealistic” by the National Institute of Economic and Social Research (NIESR).
Instead, it predicts the UK economy will continue to suffer a “slow puncture” after years of low growth, because the dark clouds cast by Brexit will linger.
Mr Javid’s first Budget, next month, will be used to unveil a £100bn boost for roads, rail, broadband and other infrastructure, with the aim to “level up” the country’s poorer regions.
But in a set of gloomy predictions, NIESR warns the investment boost will take more than a decade to produce an annual GDP gain of only around 0.4 per cent.
“Having promised the electorate both faster growth and a ‘levelling up’ in the economy, it simply cannot be delivered very quickly,” said Professor Jagjit Chadha, NIESR’s director.
“And that may further frustrate a population that demands a significant improvement in economic prospects.
“And yet free trade deals will open up the economy to the gales of competition that will seek to drive down prices in tradeable industries and may, in the short run, further accelerate job losses in those industries.”
Last month, Mr Javid vowed to lift the UK’s annual growth rate to 2.75 per cent – despite risking tariffs and other trade barriers by insisting there would be “no alignment” with EU regulations after Brexit.
The aim was “quite unrealistic”, argued Dr Arno Hantzsche, NIESR’s principal economist, as it retained its prediction of 1.5 per cent growth.
Asked why the chancellor should make such a claim, he told The Independent: “I don’t think I want to speculate”.
In its latest economic review, NIESR forecasts that:
* The 0.4 per cent long-term economic gain from boosting infrastructure spending would be “too little to offset the 3-4 per cent ‘cost’ of Brexit”.
* Even that 0.4 per cent was in doubt because the economy was already “close to potential” – risking an inflationary surge which would have to be choked off with higher interest rates.
* To work, it would also require higher day-to-day spending – for example, to recruit staff for new hospitals and schools.
* However, Mr Javid faced a £10bn shortfall to achieve his target to balance current spending by 2023 – threatening further spending cuts if taxes are held down.
* To achieve 2.75 per cent growth, productivity outside London would have to soar by 3 per cent a year – more than the entire economy achieved over the last 12 years.
The background to the Budget, to be held on 11 March, does not weigh up the growing risk of a no-deal Brexit at the end of 2020, after the UK clashed with the EU over its red lines for the trade talks.