UK government needs to change tack to prevent a recession
Andy Mayer quoted in City A.M.
“The 0.6 per cent monthly fall in GDP in June was due to the temporary disruption to normal business caused by the Jubilee celebrations – and not as bad as most had feared. Nonetheless, the 0.1 per cent contraction in the second quarter as a whole is a fair reflection of an economy that is struggling under the weight of the cost of living crisis.
“The UK is not alone. The US, Germany and France, among others, have all suffered at least one quarter of flat or negative GDP this year. Many forecasters are now predicting an outright recession in the euro area. But the UK is one of the few economies actually planning to raise taxes in 2023, adding to the headwinds from soaring inflation.
“A recession in the UK is not inevitable. The Bank of England has seized the headlines with its gloomy forecast of five quarters of falling GDP, starting in the fourth quarter of this year, with annual growth of minus 1½ in 2023 as a whole. However, the Bank is still an outlier here.
“The main reason is that the Bank, like most official forecasters (including the OBR, IMF and OECD) bases its numbers on the assumption of unchanged government policy. In this case, this means the Bank has assumed no additional support to deal with the cost of living, no new tax cuts, and that the government presses ahead with the proposed increases in corporation tax next year.
“None of this is set in stone. A more flexible policy response from a new Prime Minister – whoever they may be – should still be able to drag the UK back from the brink. But the economy is clearly close to the edge.”
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