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Think tank: UK's new spending plans could prove costly amid Brexit uncertainty

The British government is set to increase spending without a full picture of the country's economic state after Brexit on Oct. 31, potentially making additional funding commitments unsustainable, the Institute for Fiscal Studies warned in a report.

U.K. Chancellor Sajid Javid is expected to announce Sept. 4 an increase of between £4 billion and £5 billion to day-to-day spending for the 2020-21 financial year, due to higher funding commitments for education, health, defense and overseas aid, according to the IFS.

Existing fiscal rules keep government borrowing at below 2% of GDP for the next year, effectively giving the chancellor a £15 billion headroom, the IFS said, citing a previous forecast made by the U.K. Office of Budget Responsibility. However, new forecasts by the budget office due later this year could suggest that the government will actually have less fiscal breathing space than expected.

As economic forecasts deteriorate and even if a withdrawal agreement between the U.K. and the EU is assumed, the budget watchdog's next report "could show that we are not on course to keep borrowing below 2% of national income," the IFS warned.

Meanwhile, a no-deal Brexit scenario may push the U.K. to increase borrowing by about £30 billion annually starting next year, the think tank said, quoting figures from the budget office.

"Making big fiscal announcements in a period of great economic uncertainty means we will have little idea how sustainable or costly decisions made this week will be," IFS Director Paul Johnson said.