Hunt rules out tax cuts amid ‘worsening’ outlook
Chancellor Jeremy Hunt will disappoint his backbenchers after ruling our the prospect of immediate tax cuts in the Autumn Statement.
He has admitted that the UK’s fiscal picture is far worse than it was in the spring and is likely to show that earlier forecasts for debt interest charges will be exceeded by between £20 billion and £30bn.
“The international situation calls for prudence in the way we manage our finances,” Hunt told reporters on the fringe of the International Monetary Fund (IMF) meeting in Marrakesh.
“The financial picture I face is worse than in the spring and that means I will have to take different positions to make sure, in the face of what’s happening in Ukraine, Israel and parts of Africa, that we are resilient.”
He added that the outlook was more challenging because interest rates projections for all economies have gone up since March.
“That’s led to a repricing of long-term debt for everyone and the UK is not immune to those changes,” he said.
“We are likely to see an increase in our debt repayments by £20 billion to £30 billion, and that’s a huge change. We need to respond to that in a way that doesn’t drive us into recession and also make sure the UK economy is resilient going forward.”
Rising debts are putting pressure on the Treasury’s ability to maintain the pensions triple lock and whether to recommit itself to raising benefits in line with inflation from next April.
Treasury officials have suggested that the Chancellor may use a lower measure of weekly earnings that strips out bonuses, a move that could save the exchequer hundreds of millions of pounds.
Despite his gloomy prognosis, Mr Hunt last week challenged the IMF’s latest forecasts on the UK economy showing that Britain would be the worst-performing among the world’s big economies.
Hunt said that the IMF had been “more wrong than right” in its outlook for the UK, noting that it had not taken account of a substantial upgrade to the UK’s economic performance for 2020-21 made by the Office for National Statistics last month.
There was also an admission from the Bank of England governor Andrew Bailey that it faces a hard job getting inflation back to its 2% target.
He said the “last mile” was the toughest challenge facing interest rate setters even though there were signs that inflation may have peaked.
“In the last few months we have made solid progress… but let’s not get carried away, there is an awful lot still to do,” he told a meeting in Marrakesh.
Headline consumer price inflation in the UK peaked at 11.1% last October and has fallen to 6.7%. Figures for September due next week are expected to show a slight dip to 6.6%.
The Bank’s monetary policy committee (MPC) last month kept interest rates on hold at 5.25%, its first decision not to tighten policy since November 2021, when the base rate stood at 0.1%.
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