UK government plans for more debt, less economic growth because of Brexit

Britain has ramped up its borrowing outlook by much more than expected after forecasters said its vote to leave the European Union would hurt the economy, giving the government only a little room to ease looming pressure on households and firms.

Finance minister Philip Hammond said June's referendum result made it "more urgent than ever" to invest in tackling Britain's long-term weaknesses, such as productivity growth that is among the slowest of rich nations.

"Our task now is to prepare our economy to be resilient as we exit the EU and match-fit for the transition that will follow," Hammond told parliament on Wednesday to cheers from lawmakers in his ruling Conservative party.

To prepare Britain for Brexit, Hammond adopted a less rigid approach than his predecessor George Osborne to bringing down the deficit as he announced a fund to invest 23 billion pounds ($29 billion) in rail, telecoms and housing infrastructure over the next five years.

But he and Prime Minister Theresa May have little room to raise public spending in a big way or cut taxes to help the world's fifth-largest economy as it prepares to leave the EU.

The government will need to borrow 122 billion pounds more over the next five years than it expected in March, about half of it reflecting the slowdown in growth that is likely to be caused by the Brexit vote, the official independent budget forecasters said.

The debt office then announced the biggest mid-year increase in government debt issuance since the financial crisis, pushing up yields on gilts sharply.

The economy has so far largely withstood the shock of the Brexit vote, wrong-footing the Bank of England - and almost all private economists - who expected a bigger immediate hit.

But PM May plans to start formal divorce talks by the end of March, ushering in years of uncertainty for businesses over the future shape of Britain's relationship with the world's biggest trading bloc. Furthermore, the prospect of a sharp rise in inflation next year is expected to squeeze living standards.