No recession in Britain this year – Hunt

The United Kingdom is likely to avoid a recession this year, Treasury chief Jeremy Hunt said on 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.

The announcement came as Hunt delivered his spending plan to a packed House of Commons, drawing repeated cheers from his party’s lawmakers and sustained heckling from the opposition amid the political theater that traditionally accompanies publication of the government’s budget.

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.

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 UK government says big pay increases will only lead to further inflation, so the strikers got nothing.

“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 percent 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.

The OBR on Wednesday forecast that inflation would slow to 2.9 percent by the end of 2023. The economy is expected to shrink just 0.2 percent this year, compared with the 1.4-percent 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.”

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.

At one point, Hunt even offered funding to fight the “curse” of potholes, handing over 200 million pounds ($241 million) to local communities to get rid of them.

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.

He 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 6 percentage points to 25 percent, Hunt said.