Chancellor Jeremy Hunt is facing calls to bring in tax cuts in the Spring Budget as the economy has gone into recession.
The latest ONS (Office for National Statistics) figures showed the economy has gone into recession, with GDP dropping 0.3 percent in the fourth quarter of 2023, after falling 0.1 percent in the previous quarter.
Julian Jessop, economics fellow at the Institute of Economic Affairs, said the figure will put “more pressure” on Jeremy Hunt to slash taxes in the Spring Budget, on March 6.
He said: “The Chancellor needs to be careful here. There is already some additional stimulus from the National Insurance contributions cut in January and from the increases in pensions, benefits and the national minimum wage in April.
“The key driver of the slump into recession is the increase in interest rates. It is important that the Chancellor avoids doing anything that might reignite inflation and encourage the Bank to keep rates higher for longer.
“But there is room for some well-targeted tax cuts.”
The Chancellor weighed in on the figures this morning (February 15) and urged Britons to hold the course despite the flailing economy.
He told Sky News: “The underlying picture here is an economy that is more resilient as most people predicted.
“Inflation is coming down, real wages have been going up now for six months and if we stick to our guns, independent forecasters say that by the early summer we could start to see interest rates falling and that will be a very important relief for families with mortgages.”
There were previous reports the Chancellor was looking at slashing income tax or a further reduction to National Insurance in the upcoming budget.
Previous Treasury analysis indicated the Government has £14billion headroom to work with as the Tories look at which taxes to cut.
In his response today, Mr Hunt also said there was an expectation growth would be weak as the Government works to tackle inflation.
He said: “That means higher interest rates. That’s the right thing to do because you can’t have long term healthy growth with high inflation.
“But also for families, when there’s a cost of living crisis, when the cost of their weekly shop is going up, energy bills are much higher, it’s the right thing to do.”
Yet experts have also warned the recession could hit families in the pockets. Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, said: “A recession has repercussions for people’s finances as a weaker economy can cause earnings to stagnate and redundancies to rise as businesses focus on cutting costs rather than investing in expansion and new hires.
“A downturn, albeit mild, will certainly be a cause for concern for people whose household finances have already been battered by a barrage of rising bills over the past two years.”
Mr Jessop urged ministers to bring in far-reaching policies to boost growth. He said: “The UK’s problems clearly run deep, and a few tweaks to interest rates and tax rates won’t fix them.
“The longer-term story is that the economy is facing two decades of stagnation. There is an urgent need for the government to pursue pro-growth policies across the board.”
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