U.K. hikes taxes and slashes spending in tough budget after Truss chaos

U.K. hikes taxes and slashes spending in tough budget after Truss chaos

Gross domestic product is now expected to contract by 1.4% next year compared with a projection for growth of 1.8% in the previous outlook published in March by the independent Office for Budget Responsibility (OBR).

Since then, Britain’s economy has come under strain from an inflation rate now above 11%, a slowing global economy and a bout of severe financial market volatility during Truss’s brief term as prime minister.

Hunt said the OBR forecasts laid out “starkly the impact of global headwinds on the U.K. economy.”

The OBR forecast GDP would grow by 1.3% in 2024 and by 2.6% in 2025, Hunt said, compared with its previous forecasts for growth of 2.1% and 1.8% respectively.

He said the OBR saw inflation at 9.1% in 2022, up from its March forecast of 7.4%, and at 7.4% next year, up from a previously forecast 4.0%.

Hunt and Sunak have said they will restore investor confidence in Britain after Truss’s failed experiment with unfunded tax cuts.

She quit after just 50 days in Downing Street when her policies sent the pound to an all-time low against the U.S. dollar, threatened chaos in the housing market and forced the Bank of England to intervene to prop up the bond markets.

Hunt said the OBR judged that Britain — where high inflation is creating a cost-of-living crisis — is already in recession.

It is the only Group of Seven economy yet to recover its pre-pandemic size, having previously suffered a decade of near-stagnant income growth.

Hunt had warned in the days leading up to Thursday’s announcement that he could only slow a rise in borrowing costs by showing investors that Britain’s 2.45 trillion-pound ($2.91 trillion) debt mountain will start to fall as a share of GDP.

Thursday’s forecasts by the OBR showed that target would be met in the 2027/28 financial year.

Critics have warned against a return to the kind of tight spending controls pursued by the ruling Conservative Party for much of the past 12 years, saying it would hurt already stretched public services and the lives of millions of households, deepening the expected recession in the process

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