The Chancellor has lowered expectations for the size of the tax cuts coming in next month’s budget, as the Bank of England offered a fresh warning that the British economy is not out of the woods.
Jeremy Hunt told Tory MPs that the “scope” available to him to cut taxes before the election was much less than in his autumn statement in November due to new inflation expectations.
Andrew Bailey, governor of the Bank of England, said wages were still too high for inflation to fall “sustainably” to its 2 per cent target any time soon, as the bank kept interest rates at a 15-year high of 5.25 percent.
The bank expected inflation to fall to its target of 2 percent in the second quarter of 2024.
However, Bailey said a prediction that inflation is expected to reach the all-important target in the summer is not enough for him to cut interest rates – saying he wants to underscore “the degree to which inflation will persist”.
Bank of England Governor Andrew Bailey has delivered a new warning about “persistent” inflation.
(AP)
“It’s not as simple as inflation returning to its target in the spring and the job being done,” he told reporters. “We need to see more evidence that inflation is set to fall to the 2 per cent target, and stay there, before we can cut interest rates.”
Explaining that wage growth was very high, the governor said the issue of wage restraint for British companies was “important”.
Economists have warned that persistent inflation problems will keep government borrowing costs higher than desired, and may leave the Treasury with “less room” to spend than hoped.
Hunt said on Thursday that the positive news was that interest rates “appear to have peaked” – but he also warned that inflation “never goes down again in a straight line – it could pick up a bit later this month”.
The Chancellor said: “The plan is working but now is not the time to throw that plan away with a major spending spree and borrow £28bn a year more.” [Labour] I want to do.”
Jeremy Hunt has raised some form of tax cuts for the March 6 Budget
(Palestinian Authority)
The borrowing suspension was a mockery of Labour’s green investment plan – but Hunt is well aware that most Tory MPs want him to continue his “spending spree” with tax cuts next month.
The Chancellor’s tone appears to have changed since the International Monetary Fund warned earlier this week that it could not afford the tax cuts. The authority said this would be “extremely difficult” to implement, given the UK’s accumulation of debt and the need to spend more on an aging population.
The International Monetary Fund has lowered its growth forecast for the UK, and it is expected to reach 0.6 per cent this year. This would make the UK economy the second worst performer in the G7 this year.
Hunt insisted he still wanted to “lighten the tax burden”, but tried to temper Tory expectations of a big giveaway before the election.
“It doesn’t seem to me that we will have the same scope for tax cuts in the spring budget as we had in the autumn statement,” the Chancellor told the BBC. Political thinking Podcast.
Andrew Bailey says inflation could rise in the second half of 2024 with interest rates remaining at 5.25%
The Chancellor is said to have just £14bn of capital, according to Treasury estimates, leaving him little scope to cut income tax or National Insurance. England’s councils are facing a £4billion black hole, MPs have warned.
The respected Institute for Fiscal Studies (IFS) said the government would need to find another £20bn to maintain current levels of spending on the NHS, defence, childcare and international aid.
The Institute of Financial Services has warned that tax cuts are not possible without “significant” spending cuts – calling on both Labor and the Conservatives to be “transparent” about the difficult choices ahead.
Helen Miller, Head of Tax at IFS, said: The Independent“Talking about tax cuts means not talking frankly about the consequences to come – it is not ideal to say we will cut taxes today without saying how this will be achieved.
“There needs to be an honest discussion about spending cuts, and what part of the country will get smaller to make room for tax cuts. If we don’t want the country to get smaller, we have to raise taxes.”
“While politicians argue about tax cuts, they are ignoring the elephant in the room – specifically the big spending cuts scheduled to take place after the next election,” said James Smith of the Decision Foundation. “The public deserves to know what these planned cuts will mean for the state of services.” the public”.
“Right now, further tax cuts are not what the public wants, are not in the best interest of the broader economy, and will not help many voters feel economically,” said Dr. George Dibb, head of IPPR’s Center for Economic Justice. better.”
Despite Bailey’s warnings, Downing Street claimed it was “good news” that wages were growing faster than the rate of inflation.
Sunak’s official spokesman said the wage growth “gives families much-needed relief” and said it was “really important” that living standards grow again.