On Thursday, the British government announced a painful prescription to alleviate its economic crisis.
The British Finance Minister, Jeremy Hunt, confirmed that the country has entered an economic recession and that the country is suffering from the highest inflation rates in 41 years.
Prices have risen by more than 11%, putting household economies and the British business system at risk.
The Office for Budget Responsibility (OBR) expects that The British economy will contract by 1.4% next yearbefore recovering to 1.3% in 2024.
Many economists talk about a “technical recession” when GDP growth has contracted for two consecutive quarters.
Earlier this month, the Bank of England had already warned that the UK would face its longest recession since they started keeping records.
Against this backdrop, Hunt announced a plan contemplating a combination of tax hikes for citizens and businesses, as well as an austerity program that would include raising public sector salaries below inflation and budget cuts.
The secretary of state said the plan wants to address the cost of living crisis and “rebuild our economy”.
These measures aim to save 54 billion pounds and support the country’s public finances, after the recent political and economic turmoil in the country.
But many believe that these decisions will affect the family’s income.
Back to national austerity
According to Hunt’s announcement, the UK’s national debt will be £400 billion higher than expected in March.
“The hope is that more sustainable public finances and lower inflation expectations will provide room for an eventual sharper economic recovery,” says Ben Laidler, Global Markets Strategist at eToro.
“This budget includes a harsh mix of tax increases and spending cuts equivalent to 1.7% of GDP, in an attempt by the government to bridge the fiscal gap in the country, which is affected by recession and high financing costs,” the analyst adds.
A recession is never pleasant, but this can be Particularly painful. The BBC’s economics correspondent, Darshini David, explained that the official forecast not only indicates that we are already seeing a contraction in economic activity, but that it will contract by 1.4% next year.
He added, “Ten years of prosperity gains will wipe it out, affected by rising prices and increasing job losses, which are expected to total more than 500,000.”
Jeremy Hunt “has struck a delicate balance between short-term economic support – in the form of energy subsidies – and long-term fiscal sustainability,” says Silvia D’Angelo, chief economist at Federated Hermes.
He added, “For the time being, this is enough to express the feeling that the current government is serious about issues of fiscal sustainability.”
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