UK's taxes are at a 70-year high. But its finance minister won't splash the cash at upcoming Budget
LONDON — British Finance Minister Jeremy Hunt will deliver the government's Budget commitments on Wednesday against a better-than-expected economic backdrop, but economists expect him to stay cautious for now.
In his Autumn Statement in November, Hunt delivered a £55 billion ($66 billion) package of tax rises and spending cuts in a bid to plug a substantial hole in the country's public finances and restore its fiscal credibility.
A marked improvement in the country's fiscal position and a sharp reduction in wholesale natural gas prices since Hunt took office late last year propelled the government to a surprise £5.4 billion budget surplus in January.
Public sector borrowing has also undershot by around £30 billion year-to-date, economists noted this week, in part reflecting higher-than-expected tax receipts. This will lend credence to Hunt's aims of bringing public sector net borrowing below 3% by 2027/28.
However, the U.K. remains the only G-7 major economy yet to fully recover its lost output during the Covid-19 pandemic, and households continue to battle a cost-of-living crisis due to sky-high food and energy bills.
The U.K. economy flatlined in the final quarter of the year to narrowly avoid entering a technical recession, though suffered a sharp slump in December. New data Friday showed the economy grew by an annual 0.3% in January, exceeding expectations.
The independent Office for Budget Responsibility late last year predicted the sharpest fall in living standards on record amid a five-quarter recession, with GDP contracting by 1.4% in 2023.
Deutsche Bank suggested in a note Wednesday that this will likely be revised up to just a 0.5% contraction, in line with the Bank of England's forecast for a shallower
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