Chancellor George Osborne said that his target to restore the UK’s finances to a surplus by the end of the decade is no longer viable.
Osborne said that the country need to be realistic about achieving a surplus by 2020, pointing out the clear signs of shock following the UK vote to leave the EU.
Even before the referendum result economists questioned the prospect of the UK reaching Osborne’s surplus target.
Mr Osborne said in a speech on Friday: “As the governor [of the Bank of England] has said: the referendum is expected to produce a significant negative economic shock to our economy. How we respond will determine the impact on jobs and growth.
“We must provide fiscal credibility, continuing to be tough on the deficit while being realistic about achieving a surplus by the end of the decade. That’s exactly what our fiscal rules are designed for.”
“We need to reduce uncertainty by moving as quickly as possible to a new relationship with Europe and being super competitive, open for business and free trading. That’s the plan and we must set to it”, the chancellor added.
Borrowing is expected to increase as a means of avoiding further spending cuts or hiking taxes.
It is uncertain whether Osborne will continue to be chancellor when a Tory leader takes over from Prime Minister David Cameron by this October.
Theresa May, the current favourite to replace Cameron, said in a speech yesterday that she would not follow the chancellor’s fiscal rule to limit debt and deficits.
“While it is absolutely vital that the government continues with its intention to reduce public spending and cut the budget deficit, we should no longer seek to reach a budget surplus by the end of the parliament.”
The comments by Theresa May followed a shocking announcement by Boris Johnson that he would not be running for Tory leadership after Michael Gove switched his support from Johnson and decided to run himself. However, the BBC reports that Gove is under increasing pressure to abandon his bid so that the party can ‘unite’ around Theresa May.