The U.K. is likely to avoid a recession this year, Treasury chief Jeremy Hunt said Wednesday, adding a bit of surprise to what had been billed as a boring budget meant to restore confidence and stability in the nation’s finances
LONDON (AP) — The U.K. is likely to avoid a recession this year, Treasury chief Jeremy Hunt said Wednesday, adding a bit of surprise to what had been billed as a boring budget meant to restore confidence and stability in the nation's finances.
An improving global economic picture, combined with government plans to stimulate growth, mean the British economy won’t slip into a “technical recession” this year, defined as two consecutive quarters of contraction, Hunt said, citing analysis from the independent Office for Budget Responsibility. As recently as November, the OBR forecast that the economy would shrink throughout 2023.
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The improved outlook gave Hunt enough financial headroom to offer more than 9 billion pounds ($10.8 billion) of tax incentives for businesses that invest in the economy, as well as programs intended to lure mothers and older people back into work.
But there was no money for striking teachers, civil servants and young doctors who staged a noisy protest outside Parliament while Hunt delivered his speech. The strikes are similar to widespread unrest in France about the economic situation and plans to increase the retirement age.
As double-digit inflation erodes the incomes of public-sector workers, the U.K. government says big pay increases will only lead to further inflation, so the strikers got nothing.
Inflation is root cause
“High inflation is the root cause of the strikes we have seen in recent months,” Hunt said. “We will continue to work hard to settle these disputes, but only in a way that does not fuel inflation.”
The budget marks the government’s latest effort to bolster an economy ravaged by the fallout from the coronavirus pandemic and Russia’s invasion of Ukraine, which have helped push inflation to levels last seen in the early 1980s.
Consumer prices rose 10.1% in the year through January, the fifth consecutive month of double-digit increases. To combat inflation, the Bank of England has approved 10 interest rate increases over the past 15 months, raising the cost of mortgages, consumer and business loans.
But the outlook is improving.
The OBR on Wednesday forecast that inflation would slow to 2.9% by the end of 2023. The economy is expected to shrink just 0.2% this year, compared with the 1.4% contraction expected in November, the OBR said.
Keir Starmer, leader of the opposition Labour Party, noted the still anemic growth outlook, saying Hunt was “dressing up stagnation as stability” and putting the country on a “path of managed decline.”
Stark contrast
Even so, Wednesday’s budget marked a stark contrast to the situation in October when Hunt took office following his predecessor’s disastrous “mini-budget, ” which set off a financial catastrophe by promising huge tax cuts without saying how it would pay for them . The value of the pound plunged, mortgage rates soared and the central bank was forced to intervene to protect pension funds.
As a result, most analysts expected Hunt to aim for tame this time around.
At one point, he even offered funding to fight the “curse″ of potholes, handing over 200 million pounds ($241 million) to local communities to get rid of them.
But there were bigger initiatives as well.
Even before he got to the Commons, Hunt announced he would spend 3 billion pounds ($3.6 billion) to extend the energy price guarantee that has helped shield consumers from high electricity and natural gas prices this winter.
Hunt later said the government would provide billions of pounds worth of tax credits for businesses that invest in Britain, with special programs for high-tech and science-based startups that are expected to drive economic growth.
That will cut the effective tax rate for most companies, even as the government goes ahead with plans to increase the headline rate of corporation tax by six percentage points to 25%, Hunt said.
In keeping with his back to work theme, Hunt also announced increased child care payments to help young mothers return to work and more generous allowances for tax-free pension saving to entice early retirees back into the workforce.
Consolation to doctors
But those promises were little consolation to thousands of doctors, nurses and other workers who spent the past days picketing in front of hospitals and other government buildings.
The British Medical Association, which represents the fully qualified physicians known in the U.K. as “junior doctors,” says first-year doctors have seen their pay fall by 26% over the past 15 years after accounting for inflation.
That means first-year doctors now earn as little as 14.09 pounds an hour, compared with up to 14.10 pounds an hour for baristas at Pret a Manger, a sandwich and coffee shop chain that just gave workers a third raise in less than 12 months, the group said.
Outside St. Thomas’ Hospital in central London, Dr. Leah Sugarman, 33, joined other strikers as they chanted, “What do we want? Fair pay! When do we want it? Now!″
The emergency medicine doctor, who has been on the job for nine years, said she can’t pay a mortgage and struggles to live a normal life.
"We’ve all lived through COVID, that was horrendous. Most of us have come out mentally scarred from that,'' she said. “And every day that I leave work, I pretty much want to cry because I haven’t been able to do the job that I chose to go into this profession for.”
She added that she has been forced to drop her hours to less than 40 hours a week, "because I can’t mentally go to work full time anymore.”
“It is just a car crash,'' she said. "So that’s why I’m here.”
Kwiyeon Ha contributed to this report.
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