LONDON: Britain on Thursday unveiled a painful budget with £55 billion ($65 billion) of tax hikes and spending cuts despite confirming its economy was in recession.
Finance minister Jeremy Hunt said the measures were needed to bring financial stability after recent markets turmoil, insisting they would alleviate rather than aggravate the downturn.
A day after official data showed UK inflation rocketing to a 41-year high above 11 percent, Hunt triggered a fresh era of austerity following the calamitous and short-lived tenure of former prime minister Liz Truss.
Britain’s Office for Budget Responsibility judged “that the UK, like other countries, is now in recession”, Chancellor of the Exchequer Hunt told parliament on Thursday.
Despite the downturn, Hunt and Prime Minister Rishi Sunak insist tough action is needed after Truss unleashed a package of unfunded tax cuts that caused panic on financial markets.
The pound had hit a record-low close to parity against the dollar in late September after Truss failed to reveal the impact of her tax cuts on growth and inflation.
Her budget also triggered temporary purchases of UK government bonds by the Bank of England (BoE).
Sterling sank one percent against the US currency following Thursday’s budget.
Pantheon Macroeconom-ics analyst Samuel Tombs warned the budget risked “amplifying the recession already underway”.
Hunt said the UK economy was set to shrink 1.4 percent next year.
The BoE, which is raising interest rates to combat sky-high inflation, has warned the UK economy may experience a record-long recession until mid-2024.
Despite the grim outlook, Hunt on Thursday confirmed tax rises for workers alongside spending cutbacks.
He pledged, however, to increase spending on the cherished National Health Service amid a severe backlog in patient operations.
The chancellor added that benefits for the unemployed and pensioners would increase close to the inflation rate, and the minimum wage would climb.
Hunt also ramped up a windfall tax on oil and gas giants, whose profits have surged on fallout from the Ukraine war, to help fund support for the poorest consumers facing rocketing energy bills.
Energy giants such as BP and Shell will face an exceptional tax on profits of 35 percent, up from 25 percent, lasting an additional three years to 2028.
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