How Britain can reverse £24 billion in tax increases and avoid a recession

[ad_1]

But will the unexpected increase pave the way for Rishi Sunak – who has hitherto styled himself as a dovish economic firefighter – to shift the political narrative and expose his government’s £24 billion tax hikes?

Early indications from the Treasury Department are that prudent management remains the order of the day.

Financial discipline still dominates discourse within Downing Street, and Jeremy Hunt, who celebrates being a “boring” adviser, is no fan of pulling rabbits out of hats.

Government sources sought to downplay any notion of a small spending spree in the March budget. Lowering inflation is the “full focus” of Number 11, one ally said, noting that policies that might fuel demand are no longer on the table until MPs meet the target of halving inflation from current double-digit rates.

Hunt remained firm on the message on Friday. He said: “We have a clear plan to halve inflation this year — a hidden hidden tax that has pushed up interest rates and mortgage costs, dragging down growth here and around the world.

“To support families through this difficult correction, we will be providing support averaging £3,500 per household over this year and next – but the most important help we can give is sticking to our halving inflation plan this year until we get the economy growing again.”

Economists at Citigroup declared the November data a “Pyrrhic victory”, saying the unexpected growth means the UK is now likely to avoid a second consecutive negative quarter in the last three months of the year, and thus a recession in 2022.

However, they added: “Output in November is now 0.3% below February 2020 levels… The World Cup, and the late expansion of seasonal employment in November, mainly explain the further increase in services output. It does not seem likely that any will continue.” Instead, we still expect a recession in the first half of 2023, and a contraction of 0.9 percent in 2023.”

However, forecasters seem to have been wrong at least by 2022 the economy will need to contract by 0.6% in December to slip into recession – defined as two consecutive quarters of negative growth.

Gary White, of Citi stockbroker Charles Stanley, said: “World Cup spending on food and drink may have helped Britain escape recession. That means the prevailing view that Britain was indeed in recession is likely to be proven wrong.”

A small expansion now makes a recession possible, added Elisabeth Martins, HSBC’s chief economist, based on figures for December – a month that has been plagued by industrial strikes but has also helped retail and hospitality spending in the run-up to Christmas.

Take fashion stores Next and JD Sports, for example. The company’s first sales grew 4.8 per cent in the nine weeks to December 30 – £66m above the 2.2 per cent drop it had previously forecast.

Meanwhile, JD Sports raised its profit forecast after sales rose 20% over the Christmas period, something its CEO Regis Schultz attributed to its younger shopper base, many of whom still live with families and benefit from low unemployment.

That means they were able to indulge their training habits, which helped JD put on 600,000 pairs of Nike Air Force 1s over the past three months.

In groceries too, Sainsbury’s, Tesco, M&S and Lidl all posted strong results.

“After two years of curtailed festivities due to Covid, consumers seem intent on pushing the boat over the holidays despite economic concerns,” said Rosalind Hunter, partner at consultants Simon-Kucher & Partners.

Tesco, Sainsbury’s and Marks & Spencer have all painted a picture of shoppers forgoing the middle and trading in value products or spending more on upper class purchases.

“Our customers wanted to celebrate and do their absolute best in terms of celebrating the Christmas period,” said Stuart Machin, CEO of Marks & Spencer.

However, now that Christmas is over, the belt-tightening period is expected. After the holiday season, we will likely see restricted spending and a calmer outlook [the first quarter]Hunter says.

The long-term economic outlook has also shown some green shoots in recent weeks. The sharp decline in wholesale gas prices will remove some of the negative growth risks in 2023 by easing some of the financial pressures on companies, said Alan Monks of JP Morgan.

[ad_2]