Philip Hammond backs UK economy to recover from sterling's devaluation

Helen Cahill
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Hammond was grilled by MPs today on a range of issues (Source: Getty)

Chancellor Philip Hammond has asserted that the UK economy will adjust to the devaluation of sterling.

Answering questions from MPs in the House of Commons today, Hammond said the decline in the UK's trade balance will moderate as exporters boost their output.

The UK's trade deficit widened from £6.9bn to £8.9bn in the three months to May 2017, which the Office for National Statistics put down to a rise in imports. Import prices increased by 0.5 per cent.

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Hammond said:

The short run effect of a depreciation of sterling would be expected to be a decline in our trade balance performance as we suck in more expensive, in sterling terms, imports.

But over time, and there's signs the economy is doing this now, the economy will adjust, with exporters increasing their output to take advantage of weaker sterling and their greater competitiveness in international markets.

Should we stay in the EEA?

The chancellor was also asked about the nature of the deal the government wanted to strike with the EU.

Labour MP Heidi Alexander said the government's plan for a "Canadian-type deal" with the EU was a risk to the economy.

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"The chancellor will know from his own officials' analysis that the difference between staying in the European Economic Area and a Canadian-type deal, which is essentially what the government is now aiming for, is a hit to GDP of £16bn," she said.

"How can it not be right to stay in the EEA at least for transition?"

However, Hammond refused to commit the government to a particular model for its post-Brexit deal.

He said the UK was expecting a "bespoke arrangement with the EU", both for a transitional period and the longer term.

Grilled, toasted, barbecued?

Hammond used the interrogation from MPs as a chance to welcome his new parliamentary watchdog, Nicky Morgan, who will lead the Treasury Select Committee, a panel of MPs charged with scrutinising Hammond's progress on Brexit and other financial issues.

“I look forward to being grilled or toasted, or whatever the correct expression is, by her in due course," he said.

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