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Brexit could wipe billions off UK's productivity growth.

BRITAIN'S fiscal watchdog has warned that a potential Brexit blow to productivity growth could put a PS36bn dent in the Treasury's coffers and leave the economy nearly PS100bn worse off overall.

The Office for Budget Responsibility (OBR) said an improvement to the UK's weak productivity would bolster economic growth and help shore up the public finances.

However, it said Britain's divorce from the European Union (EU) added to the uncertainty as to whether productivity - a measure of an economy's efficiency - can return to healthy levels.

In its first Fiscal Risks Report, the OBR said if just 0.1 percentage points was shaved off productivity growth over the 50-year period the economy would shrink by 4.8%.

It came as the fiscal referee said because the UK's debt position was higher than before the financial crisis, the public finances were now "much more sensitive" to higher inflation and interest rates.

Brexit also had the potential to exacerbate potential financial shocks, the OBR said, while it also highlighted the risk of higher public spending if the Government responds to "austerity fatigue".

In a 300-page report, the OBR said: "The expected return of productivity growth toward historical norms is the most important uncertainty in our forecast, given its persistent weakness in recent years and its importance for wider GDP growth and the fiscal position. Brexit only adds to this uncertainty.

"Just 0.1 percentage points less productivity growth each year over a 50-year horizon would leave the economy 4.8% smaller than would otherwise be the case, which is equivalent to PS100 billion in today's terms."

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Title Annotation:Business
Publication:The Journal (Newcastle, England)
Date:Jul 14, 2017
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