The future relationship between the UK and the EU remains unclear. Despite that uncertainty the economy has gained momentum over the last few months, fiscal outturns have been better and financial markets appear to be sanguine about the uncertainty. It is against this backdrop that the Chancellor will have announced the Budget on 29 October, after this Review went to press.
Our main forecast is conditional on a ‘soft’ Brexit, but we also describe the consequences of an orderly no-deal Brexit. Under our soft Brexit scenario, the Chancellor will have the necessary space under the fiscal mandate to borrow on average an additional £16 billion per year between 2019-20 and 2022–23 compared to the OBR Spring forecast. This, together with better revenues, provides room for the Chancellor to spend an average of around £30 billion more over the same period. Under the no-deal Brexit scenario, borrowing would be an average of £14 billion higher than in the soft Brexit case.
Even though the government complies with the fiscal mandate under the soft Brexit scenario, it is unlikely to meet its medium-term objective which is to balance the budget unless it chooses to tax more.