Falling inflation removes obstacle to tax cuts
15 November 2023
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Commenting on data showing that the rate of inflation fell to 4.6 per cent in October, Economics Fellow at the free market think tank the Institute of Economic Affairs, Julian Jessop, said:
“The sharp fall means that inflation is back on track to the Bank of England’s 2% target next year. This should slam the door on any further increases in interest rates and bring forward the timing of the first cut.
“The sharp drop also fulfils the Prime Minister’s target of halving inflation and removes at least one obstacle to tax cuts in the Autumn Statement. These are likely to focus on business taxes, with any big changes in personal taxes held back until the Budget in the Spring.”
“The government will claim that inflation would have been slower to fall if it had not taken tough decisions on fiscal policy, notably on public sector pay, spending and tax. But this is debatable. The drop in inflation mainly reflects the tightening in monetary policy, the global economic slowdown, and the decline in commodity prices, rather than anything the government has done.”
The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems. The IEA is a registered educational charity and independent of all political parties.
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Thanks for this Julian – very good take.
What is your opinion on the “statistical fog” created by this announcement though? What does the data show that the headline does not?
The headline is that average inflation has come down, but if you dig into the data, house owner and occupier costs and actual rents seem to have been rapidly increasing through this year.
There also seems to be a strange wage-inflation rocket taking off too. Consequences as yet unknown, but can’t be good.
If anything the underlying data provides plenty of evidence for those of us who want to hold government to account fiscally to take action.
I say “Take action” – but I mean cut spending, free up the economy.
Happy to hear responses.