Chancellor George Osborne attempts to calm markets
- Credit: PA
An emergency budget to deal with the fallout from the referendum vote to leave the EU looks unlikely to take place until the autumn, with Chancellor George Osborne saying today it was better to delay action to shore up the public finances until a new prime minister is in place.
In an early-morning statement at the Treasury designed to calm market anxieties after the pound fell a further 2% against the US dollar in overnight trading, Mr Osborne insisted that the UK economy is “about as strong as it could be to confront the challenge our country now faces” and said Britain remains “open for business”.
Following talks over the weekend with Bank of England Governor Mark Carney and fellow finance ministers and international economic organisations, Mr Osborne said that “further well-thought through contingency plans” were ready to be deployed if needed in response to further volatility.
Mr Osborne, who has kept a low public profile since the Brexit vote, said it was “inevitable” that the UK economy would face an “adjustment” in the wake of the Brexit vote, though he steered clear of repeating explicit warnings of recession made during the referendum campaign.
The Chancellor said: “It will not be plain sailing in the days ahead. But let me be clear – you should not underestimate our resolve.
“We were prepared for the unexpected and we are equipped for whatever happens. And we are determined that, unlike eight years ago, our financial system will help our country deal with any shocks and dampen them, not contribute to those shocks or make them worse.”
The Chancellor’s intervention came ahead of the opening of markets in London, as Boris Johnson broke cover in a bid to start healing Tory wounds ripped open by the bitter referendum battle.
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Mr Johnson, the frontrunner to replace David Cameron for PM, used an article in the Daily Telegraph to insist that Britain would not turn its back on Europe and would be able to introduce a points-based immigration system while maintaining access to the Single Market.
Mr Cameron was due to chair an emergency Cabinet meeting, while US secretary of state John Kerry was visiting London and Brussels for talks on the fallout from the vote.
Meanwhile, Labour leader Jeremy Corbyn was insisting he will not stand down in the face of a rebellion which saw 11 members of the shadow cabinet quit following the sacking of Hilary Benn as shadow foreign secretary.
Mr Osborne said that Article 50 of the Lisbon Treaty, which sets in train the two-year process of negotiating withdrawal from the EU, should not be invoked until a new prime minister has set out “a clear view about what new arrangements we are seeking with our European partners”, effectively delaying talks until October at the earliest.
He made clear he expects to remain as Chancellor during that time, but gave no indication of whether he will run as a candidate to succeed Mr Cameron, saying that he would address questions about his role in the future of the Conservative Party in the coming days.
“The British people have given us their instructions,” said Mr Osborne. “There is much to do to make it work. We start from a position of hard-won strength, and whatever the undoubted challenges, my colleagues and I are determined to do the best for Britain.”
Senior Leave campaigner Michael Gove, who is widely tipped as a possible chancellor if Mr Johnson enters 10 Downing Street, said Mr Osborne had provided “the reassurance that people need”.
Leaving his London home, Mr Gove said: “I’m looking forward to hearing the Prime Minister’s statement later today. I listened to the Chancellor and I found his words incredibly reassuring.”
Mr Osborne, who was accused by Brexit supporters of scaremongering during the referendum campaign, insisted he was not backing away from the warnings he made about the likely negative impact of a Leave vote on the economy, which the Treasury said could create a £36bn black hole in the public finances by 2030.
“I don’t resile from any of the concerns I expressed during the campaign,” said the Chancellor. “But I fully accept the result of the referendum and will do everything I can to make it work for Britain.
“It is inevitable after Thursday’s vote that Britain’s economy is going to have to adjust to the new situation we find ourselves in.”
Mr Osborne said that volatility in the markets, which saw the pound fall to 30-year lows in the immediate aftermath of the referendum on Friday, was “likely to continue”.
And he said uncertainty would remain for “the coming months and beyond” as Britain worked out its new relationship with its European allies.
“It is already evident that, as a result of Thursday’s decision, some firms are continuing to pause their decisions to invest or to hire people,” said the Chancellor. “As I said before the referendum, this will have an impact on the economy and the public finances and there will need to be action to address that.
“Given the delay in triggering Article 50 and the Prime Minister’s decision to hand over to a successor, it is sensible that decisions on what that action should consist of should wait for the OBR (Office for Budget Responsibility) to assess the economy in the autumn, and for the new prime minister to be in place.
“But no-one should doubt our resolve to maintain the fiscal stability we have delivered for this country.
“To all companies large and small I would say this: the British economy is fundamentally strong, we are highly competitive and we are open for business.”
Mr Osborne said Britain must aim to establish “the strongest possible economic links with our European neighbours”, as well as with trading partners around the globe.
“I do not want Britain to turn its back on Europe or the rest of the world,” he said. “We must bring unity of spirit and purpose and condemn hatred and division wherever we see it.
“Britain is an open and tolerant country, and I will fight with everything I have to keep it so.”
Mr Osborne warned during the referendum campaign that a Brexit vote would force an emergency budget within a couple of months involving increased taxes, reduced public spending or both. But his warning was denounced at the time by Leave campaigners as a threat to punish voters if they opted to quit the EU.
Responding to his statement, shadow chancellor John McDonnell told Sky News: “I think it’s important that we all put out reassuring messages now. I think that his message that Britain is open for business is exactly the right one, but I’m concerned that the economy is fragile as a result of his mismanagement of the economy.
“What we’ve got to do now is work together as best we can to make sure that, yes, the decisions of the referendum are implemented but they are implemented in a way that protects our economy and we look to the long term now.”