London
CNN
—
The UK financial markets were frightened Wednesday again – although, unlike last fall, the turbulence had nothing to do with a new one state budget aims to turn Britain’s economic situation around Waste.
UK Treasury Secretary Jeremy Hunt was careful to avoid this theatre that swallowed up his predecessor’s “mini” budget for September when he presented new spending and tax plans on Wednesday. But as a crash at Credit Suisse
(KS) Equities revived fears sparked by the collapse of Silicon Valley’s bank, the FTSE 100, last week
(UKX) fell and the pound fell against the US dollar.
Luckily for Hunt, the economic picture has improved a bit since he scrapped most catastrophic Plans for debt-fueled tax cuts and a spending spree unveiled by former Chancellor Kwasi Kwarteng. Falling natural gas prices have eased inflation while boosting public finances, which are strained by household energy subsidies.
The Office for Budget Responsibility (OBR), the government’s budget watchdog, now expects the UK economy to contract by just 0.2% in 2023, compared with the 1.4% contraction forecast in November.
Quiet, the UK is the only major economy that has the IMF Forecasts will tighten this year; inflation continues to erode wages and exacerbate a long-standing decline in living standards; supply chains remain fragile; and the country is experiencing the worst wave of strikes in 30 years.
Financial market turmoil could exacerbate the situation if UK banks respond by reducing lending to households and businesses, weighing on consumer demand and investment spending.
More than 133,000 officers was due go on Wednesday on pay, pensions and job security, followed by teachers, transport workers, young doctors and some BBC journalists.
Some economists thought Hunt could raise public sector salaries to end the ongoing strikes. But he only mentioned “industrial action” in passing, even though the economy lost nearly 2.5 million workdays to strikes between June and December.
However, Hunt promised extend government support on energy bills, while maintaining a £2,500 ($3,037) cap on annual bills through the end of June, which will save the average family £160 ($193).
He also presented plans to boost corporate investment and increase the workforce. These measures “should be growth-promoting,” said the chief economic advisor of the EY ITEM Club, Martin Beck. “Although they will pull the UK out of a long period of slow expansion seems questionable.”
Despite a long list of challenges facing the UK economy – from Brexit and labor shortages for striking workers and a crumbling public health system — Hunting refused the “Tale of the Fall”.
“During the fall we made tough decisions to deliver stability and solid money. Today we are delivering the next part of our plan: a growth budget,” he said.
“Not just growth out of a downturn. But long-term, sustainable, healthy growth… all while making our country one of the most prosperous in the world.”
Britain is the only G7 economy not yet to regain its pre-pandemic size, and a lack of investment is partly to blame.
As part of his bid to balance the books, Hunt stuck by his plans to raise corporate tax from 19% to 25% in April, noting that the UK would still have the lowest key rate in the G7.
But to spur growth and address low business investment, Hunt unveiled tax breaks that allow companies to offset every pound invested in equipment, plant and machinery against taxable profits over the next three years. The OBR expects this to increase business investment by 3% for each year it takes place.
The labor shortage is also a huge obstacle to the economy growth, and Hunt announced a series of measures to help parents, pensioners and people with disabilities or ill health back to work.
There are currently more than 1 million job vacancies in the UK economy, some 300,000 more than before the pandemic, and 21% of the labor force is “economically inactive” according to the Office for National Statistics, meaning they are unemployed and not looking for work .
Besides Brexit, Early retirement and sickness are important factors. About 3.5 million people between the ages of 50 and 65 are not part of the labor force, according to Hunt.
In one of the biggest budget gifts, Hunt introduced 30 hours of weekly free childcare for working parents with children over the age of nine months, to be phased in from April 2024 through September 2025. The Chancellor said the measure would cut childcare costs by 60%. save Families £6,500 ($7,800) per year.
To encourage people over 50 to extend their careers, Hunt increased the annual tax-free allowance on pension contributions by 50% to £60,000 ($72,360) and eliminated the £1m ($1.2m) “lifetime allowance” for tax-free pension contributions , which disadvantaged workers with larger retirement savings and has been cited by some physicians as a reason for early retirement.
While the outlook for the UK economy looks brighter than in the autumn, the sudden collapse of the Silicon Valley bank could weigh on growth in the short term.
Troubles in the US banking sector represent “a new source of uncertainty” and “an unexpected caution may need to be exercised in the OBR’s less pessimistic forecasts,” Beck of the EY ITEM Club said in a statement on Wednesday.
The collapse of the SVB continued to reverberate through global financial markets on Wednesday Bank stocks, including in the UK, where financial services still dominate the economy.
Although the sell-off is unlikely to result in a broader banking crisis, it will make lenders more cautious, which Berenberg said could have a significant impact Senior Economist Kallum Pickering.
“It is likely that UK financial conditions will remain tighter (or potentially significantly tighter) in the coming months than they would have been without the US bank woes,” Pickering said in a research note on Monday. “All other things being equal, tighter financial conditions will weigh on consumer demand and reduce the availability of credit for capital spending.”
If banks rerate or reduce lending, it could make the UK recession “a touch bigger” than the 1% contraction Capital Economics expects this year, said the firm’s UK chief economist Paul Dales.
“But at the moment it doesn’t look like a repeat of the global financial crisis is imminent, during which UK real GDP fell by 6%,” he added.
Source : www.cnn.com