Economy

UK’s Hunt faces triple threat: recession, debt, and Conservative rebels. By Stocksak


© Stocksak. Jeremy Hunt, British Chancellor, arrives in Downing Street to attend a Cabinet meeting. The announcement of a new prime Minister is expected to take place in London, Britain on October 25, 2022. REUTERS/Peter Nicholls

By William Schomberg

LONDON (Stocksak), Jeremy Hunt, the newly confirmed finance minister, must keep investors calm about Britain’s debt mountain, avoid causing a deep depression and find a way to stop the Conservative Party splintering – and it will all be done by Monday.

Hunt, who was reappointed to his position by Rishi, the new Prime Minister on Tuesday, will announce a budget plan Oct. 31.

The men hope it will put an end to Britain’s recent economic policy experiment led by Liz Truss. It caused a historic bond market slump that made Truss the most inept prime minister in history.

Hunt, a former health and foreign minister, was appointed Truss’s new finance minister shortly after Kwarteng, her friend and low-tax disciple, was fired less than two months ago to appease the markets.

Hunt immediately dismantled Truss and Kwarteng’s tax cuts program worth 45 billion pounds. He warned of tough decisions ahead for Britain’s economic credibility.

A sharp fall in borrowing costs over this past week — 30-year government bonds yields fell Tuesday to their lowest level since the day prior Truss’s “mini budget” — has made that job a little easier by reducing government’s debt interest bill.

Charlie Bean, a former top officer at the Office for Budget Responsibility, stated that Hunt and Sunak were facing a hole in their public finances closer to 30 Billion Pounds per year than 40 Billion pounds a few weeks ago.

However, the problem is still very large. The strain on health, education, public services and other public services in Britain continues to be immense after more than a decade-long period of tight controls on public spending. Many Conservatives are opposed to tax increases.

“The critical thing will be whether Conservative MPs (who are now all speaking about unity) when it comes down to actually being faced avec measures they don’t like, will they support them or will we see them returning to the chaotic infighting that we’ve witnessed recently. Bean spoke to BBC.

Tensions within Conservative Party have been high since 2016’s decision by voters to leave European Union. This led to the removal of Truss, Boris Johnson and other leaders.

TOUGH DECISIONS

Next week will see big budget decisions: whether to restore the social security rise that Sunak initiated when he was Johnson’s Finance Minister and which was then abandoned by Truss; if to signal future income tax cuts, as Sunak promised in his failed summer Downing Street bid. And where to reduce public spending.

The severe cost-of living crisis caused 10% inflation is also putting the pressure on the new government, to raise welfare and retirement benefits by double-digits. Meanwhile, pay strikes are breaking out in the public sector.

Hunt and Sunak need to decide what to make of Britain’s extremely expensive energy price cap, which is crucial for the short-term.

Hunt has shortened the duration of his scheme to six month, which will still cost an average 60 billion pounds, as opposed to the two years Truss promised. He has not yet said how he will honor his promise to protect the most vulnerable people after April.

The Bank of England will be focusing on the future of the cap as it prepares for a second increase in interest rates on Nov. 3, when it will also signal its future plans.

Economists believe that Britain could fall into recession due to the combination of higher energy costs starting in April, more rate increases, and a slower global economy.

Ratings agency S&P Global (NYSE:) Ratings forecast on Tuesday that Britain’s economy would contract by 0.6% in 2023.

The head of a major employer’s group asked Hunt and Sunak to reconsider their focus on tax and spending restrictions in the 2010s under the Conservatives. Instead, he suggested pro-growth measures.

Tony Danker, Confederation of British Industry Director, said that the country could end up in a similar doom cycle where all you have is to keep coming back every other year to find additional tax increases and spending cuts because there has been no growth.

News Source and Credit

Stocksak Editorial

We are a financial blog that covers topics such as investing, saving, spending, and earning more money. Please feel free to peruse our site and read any of the articles that catch your interest.

Related Articles

Leave a Reply

Your email address will not be published.

Back to top button