Chancellor of the Exchequer Jeremy Hunt said the UK economy will avoid a recession this year as the outlook improves, giving the Treasury a potential boost.
(Bloomberg) — Chancellor of the Exchequer Jeremy Hunt said the UK economy will avoid a recession this year as the outlook improves, giving the Treasury a potential boost.
“The UK economy is on the right track,” Hunt said in his budget speech to Parliament in London on Wednesday. “The UK will not now enter a technical recession this year,” he said, adding that the outlook is to “halve inflation, reduce debt and get the economy growing.”
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Hunt said the Office for Budget Responsibility, the fiscal spending watchdog, expects inflation to fall from 10.7% in the final quarter of 2022 to 2.9% by the end of this year.
The projection was the first part of the Treasury’s annual budget statement, which includes Prime Minister Rishi Sunak’s tax and spending priorities in the leadup to the next general election. Hunt is repairing damage done to the public finances that sparked a panic last year during Liz Truss’s brief term as prime minister. The Conservative government must call a vote by early 2025.
The measures allowed Hunt to extend £94 billion of support for people struggling with a cost of living crisis, amounting to about £3,300 ($4,000) per household. That includes a cap on electricity and natural gas bills at about £2,500 over the next three months, plus extending a cut on fuel duties.
Full Expensing
Hunt set out a £9 billion package of allowances designed to encourage companies to invest, reversing one of the things that’s been a drag on the economy for years. The OBR said measures to allow full expensing of capital projects will increase investment 3% every year it’s in place.
“Its impact on our economy will be huge,” Hunt said. “This decision makes us the only major European country with full expensing.” The program will run for three years initially, with a view to making it permanent if possible.
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There was also a £1.8 billion package of measures on research and development to help 20,000 cutting-edge companies, which are turning Britain into what Hunt called a “science superpower.”
Hunt said the economy would only contract by 0.2% in 2023, compared to the OBR’s previous forecast of shrinking by 1.4%. The average of independent forecasts had expected a 0.7% decline.
There were modest downgrades for longer-term growth forecasts — the OBR now expects the economy to grow 2.1% in 2026, versus a previous forecast of 2.7% growth, and growth of 1.9% in 2027, versus the previous forecast of 2.2% growth.
Hunt said he would meet his fiscal rule of having debt falling as a proportion of the size of economy in five years’ time, with £6.5 billion to spare. He said he’d meet his borrowing rule — to have public sector net borrowing below 3% of GDP over the same period – with £39.2 billion to spare.
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In a series of giveaways, Hunt said:
- The government’s Energy Price Guarantee will remain at £2,500 for the next three months, before domestic power prices are expected to fall later this year.
- Fuel duty would be frozen to limit a hit to motorists.
- A tax on beer in pubs would be cut, giving a boost to the hospitality sector.
- The defense budget will rise by £11 billion over the next five years, making spending 2.25% of GDP.
- Leisure centers will get £63 million to cope with soaring costs.
- Local charities will get £100 million to extend their work.
Read More: Hunt Pledges to Unblock Investment in the UK: Budget Guide (1)
(Updates with more details from fifth paragraph.)
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