UK's Reeves says Brexit and austerity hit harder than thought

LONDON (Reuters) -British finance minister Rachel Reeves said Brexit along with spending cuts by previous governments had weighed more heavily on the economy than originally thought as she readies a budget likely to tax increases but also measures to boost growth.

In comments reported by the Guardian newspaper, Reeves said she was aiming to defy an expected downgrade in the economic growth forecasts from Britain's independent fiscal watchdog, the Office for Budget Responsibility.

"We also know - and the OBR, I think, is going to be pretty frank about this - that things like austerity, the cuts to capital spending and Brexit have had a bigger impact on our economy than even was projected back then," she was quoted as saying by the newspaper during a conference in Birmingham.

"That's why we are unashamedly rebuilding our relations with the European Union to reduce some of those costs that were, in my view, needlessly added to businesses since 2016 and since we formally left a few years ago."

The OBR has estimated that Brexit will reduce Britain's long-term level of productivity by 4% compared with remaining in the European Union.

On Saturday, Bank of England Governor Andrew Bailey said Brexit was likely to continue to weigh on British economic growth over the coming years.

Data published earlier showed Britain's public borrowing in the first half of the financial year was the highest on record except during the height of the coronavirus pandemic, keeping up the pressure on Reeves ahead of the November 26 budget.

(Writing by William Schomberg; editing by William James)