The UK economy will avoid a recession this year and inflation fall to 2.9% by the end of 2023, defying a succession of poor economic forecasts, according to Chancellor Jeremy Hunt and the Office for Budget Responsibility (OBR).
Hunt reported the latest OBR forecasts as he delivered the Budget today, noting the UK economy is now expected to contract by just 0.2% but should avoid a technical recession which requires a contraction in consecutive quarters.
The economy is then forecast to grow by 1.8% in 2024, 2.5% in 2025 and 2.1% in 2026, according to the OBR, with inflation set to fall from 10.7% at its peak late last year to 2.9% by the end of this year.
In a series of measures designed to alleviate financial pressures on households, Hunt confirmed the government’s Energy Price Guarantee or cap on energy bills will remain at £2,500 for the three months to June, claiming this would save the average household £160 on top of measures previously announced.
He also announced a further 12-month freeze on fuel duty.
The Chancellor confirmed the rate of corporation tax on business profits of more than £250,000 a year would increase from 19% to 25% from April, as announced by his predecessor and now prime minister Rishi Sunak.
But Hunt sweetened the pill for smaller businesses by increasing the annual investment allowance for SMEs to £1 million, allowing the majority of companies to deduct the full value of investments in a year from that year’s taxable profits.
This ‘full expensing’ allowance will apply for three years, with the Chancellor declaring “an intention to make it permanent as soon as we can responsibly do so”.
As forecast, Hunt also extended free childcare to cover children below the age of three in households where both parents are working. The provision applies for 30 hours a week in term time, or for 38 weeks a year.
SMEs will also be able to claim a credit worth £27 for every £100 they spend on research and development if this totals 40% or more of their total expenditure.
The Chancellor unveiled a series of measures targeted at encouraging those outside the workforce into work, including apprenticeships or ‘returnerships’ for those over 50 who want to return to work.
There will be a new, voluntary employment scheme for disabled people, and disability benefits entitlement will be separated from an individual’s ability to work.
In a further move to support businesses, Hunt announced a two-year extension of tax relief on energy efficiency measures under the Climate Change Agreement scheme.
The headline forecasts should provide a fillip to consumer confidence following months of sober economic news.
However, Labour leader Keir Starmer responded to the Budget by declaring the government “out of touch”, saying it has Britain “on a path of managed decline”.
A spate of strikes over pay by teachers and public sector workers, including junior doctors and Border Force staff, were timed to coincide with Budget day, with delays for international arrivals expected at airports and ports.