UK economy will avoid recession this year, says Hunt

BRITAIN’S economy is set to avoid a recession in 2023 but will still contract this year, finance minister Jeremy Hunt said on Wednesday (Mar 15) as he made a budget speech which included measures to speed up economic growth.

Under a new set of forecasts, gross domestic product was set to shrink by 0.2 per cent in 2023 rather than contract by 1.4 per cent as projected in November by the Office for Budget Responsibility (OBR), Hunt told parliament.

Since November, energy costs – which soared after Russia’s invasion of Ukraine – have come down and there have been signs of a recovery in some economic data.

“Today the Office for Budget Responsibility forecast that because of changing international factors and the measures I take, the UK will not now enter a technical recession this year,” Hunt said as he presented his budget in parliament.

The independent OBR forecast that economic output would grow by 1.8 per cent in 2024 and by 2.5 per cent in 2025, Hunt said, compared with its previous forecasts of growth of 1.3 per cent and 2.6 per cent respectively.

Britain’s is the only Group of Seven economy yet to recover its pre-pandemic size, having already suffered a decade of near-stagnant income growth before the Covid-19 hit to activity and a surge in inflation, which remains above 10 per cent.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

“Despite continuing global instability, the OBR report today that inflation in the UK will fall from 10.7 per cent in the final quarter of last year to 2.9 per cent by the end of 2023,” Hunt said.

Hunt has ruled out a major spending spree or big tax cuts in his budget plan.

But he confirmed a three-month extension of energy bill subsidies for households and extended a decade-long fuel duty freeze.

Hunt said the government would add £11 billion (S$17.9 billion) to the defence budget – which has been stretched by Britain’s support for Ukraine in its war with Russia – over the next five years.

Many economists have said he probably wants to hold back some fiscal firepower for closer to a national election which is expected in 2024. The opposition Labour Party is far ahead of the ruling Conservatives in opinion polls.

Hunt – who was rushed into the Treasury last October to undo the plans for unfunded tax cuts that sowed chaos in financial markets during Liz Truss’ brief premiership – has pledged to get Britain’s £2.5 trillion of debt falling as a share of GDP in five years’ time.

He said Wednesday’s forecasts by the OBR showed that fiscal target was on course to be met with a buffer of £6.5 billion.

Instead of spending heavily now, Hunt was expected to use his budget speech to address some of the root causes of Britain’s economic problems such as the fall in the size of the labour market after the pandemic. REUTERS