News

Chancellor Jeremy Hunt on Wednesday presented a long list of measures to boost UK economic growth, but the medium-term outlook remained relatively unchanged.

Hunt said his was a Budget for “long-term, sustainable, healthy growth that pays for our NHS and schools, finds jobs for young people, and provides a safety net for older people”.

It included measures aimed at boosting business investment and employment among various groups including mothers, older workers and the disabled.

But the Office for Budget Responsibility, the fiscal watchdog, revised upwards its medium-term growth forecast only marginally.

A ‘Budget for growth’ . . . 

  • £5bn expansion of free childcare for one- and two-year-olds in England, to help parents return to the workplace earlier; schools to offer wraparound care

  • A 100 per cent allowance on business capital spending for three years

  • Increase in the £40,000 cap on tax-free annual pension contributions — frozen for the past nine years — to £60,000, and the abolition of the lifetime allowance to discourage early retirement

  • Returnships to help people aged over 50 get back to work

  • Launch of 12 new low-tax zones designed to drive economic growth and reduce regional disparities

  • Work capability assessments scrapped, allowing disabled people to sign up for a job without fear of losing their benefits

  • Tax breaks for the entertainment industry

. . . With measures to ease the cost of living crisis

  • Extension of fuel duty freeze for 12 months

  • Alcohol duty rates frozen until August 2023

  • Extension of the £2,500 energy price guarantee for three months from April, avoiding a sharp rise in household bills this spring

  • In Q2 2023, annual inflation is revised to 6.9 per cent, down from 8.9 per cent in previous estimates

The UK’s medium-term economic outlook is little changed . . . 

  • By Q1 2028, the economy is forecast to be 8.7 per cent larger than in the final three months of 2019, before the Covid-19 pandemic; this is only marginally higher than the 8.1 per cent increase forecast in November

  • Average annual growth from the eve of the coronavirus pandemic until 2028 is estimated at 1 per cent; it was 2.75 per cent before the 2007-08 global financial crisis

  • Real household disposable income per person — a measure of real living standards — is expected to fall by a cumulative 5.7 per cent over 2022-23 and 2023-24. While this is 1.4 percentage points below November’s forecast, it would still be the largest two-year fall since records began in 1956-57

  • This is despite the fact the OBR now expects the UK economy to contract by only 0.2 per cent this year, up from the minus 1.4 forecast in November, helped by lower energy prices

  • The UK economy is expected to return to its pre-pandemic peak in mid-2024. This is six months earlier than expected in November, but later than any other G7 country

. . . But the fiscal outlook has brightened

  • Borrowing in 2022-23 has been revised down to £152.4bn from £170bn, with an £8.5bn downward revision for 2023-24, helped by a reduction in the cost of the government’s energy price guarantee

  • In 2027-28, borrowing is estimated to be £49.3bn, £19.9bn lower than the previous forecast

  • Underlying debt — or borrowing accumulated over time — is forecast to peak in 2026-27, a year later than in November’s forecast, at 94.8 per cent of gross domestic product. In 2027-28, underlying debt is expected to be 94.6 per cent of GDP, 2.6 percentage points lower than forecast in November.

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