UK budget to weigh austerity as Brexit clouds gather

LONDON - 22 November 2017: Britain's Conservative government, facing severe pressure over Brexit and battling a sluggish economy, launches a budget fightback Wednesday that is expected to see some scaling back of unpopular austerity.

Finance minister Philip Hammond will deliver his annual tax and spend plans as uncertainty lingers over the nature of Britain's departure from the European Union.

Chancellor of the Exchequer Hammond is under pressure to deliver an eye-catching budget after Brexit spats with cabinet colleagues -- and following Prime Minister Theresa May's botched general election earlier this year.

He faces calls for bold action but is hampered by Britain's faltering economic growth, its stuttering productivity and high inflation that is stretching household incomes.

"The squeeze on available resources could not have come at a worse time for the chancellor and the UK economy," said economist Mark Gregory at accountancy giant EY.

"Growth is slowing and business confidence is falling and the UK needs to invest to prepare for Brexit."

But Gregory said he did not hold out much hope for the government "to lay out bold measures that could improve the business investment climate, increase productivity and improve supply chains".

On the eve of the budget, official data showed Britain's public finances worsened unexpectedly last month.

Public sector net borrowing, the government's preferred measure of the deficit, rose to £8.0 billion ($10.6 billion, 9.0 billion euros) in October on soaring debt-interest payments.

Hammond will likely lift his annual borrowing targets and cut economic growth forecasts on Wednesday.

The chancellor is meanwhile set to announce a pay rise for state-paid nurses after unveiling similar increases for police and prison officers, signalling a shift away from the austerity policies that have dominated since the 2008 financial crash.

- Housing 'a major focus' -

Hammond will also boost housing expenditure in the wake of the Grenfell Tower fire disaster that killed 71 people earlier this year.

"Less fiscal headroom and political pressure mean that chancellor Hammond could struggle to make big changes," cautioned ING economist Jonas Goltermann.

"There will be some additional measures aimed at shoring up the government's political standing.

"Reports suggesting support for housing construction is likely to be a major focus, and there may also be some increases in public sector pay."

Hammond will announce plans to build 300,000 homes every year, unveiling billions of pounds of investment alongside new powers and planning rules, according to media reports.

The minister will also unveil a £1.7-billion investment to improve transport links.

Wednesday's flagship budget comes after May's rightwing Conservatives lost their parliamentary majority in a June general election.

By contrast, the main opposition leftist Labour Party under leader Jeremy Corbyn gained a ringing endorsement of its anti-austerity policies.

May had called the snap election to strengthen her hand in Brexit negotiations with Brussels. Britain wants to leave the EU in March 2019.