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Brexit, slashing investment and Liz Truss’s mini-budget are among the “own goals” that have led to the UK’s dire financial straits, according to a top economist.

Paul Johnson, the director of the Institute for Fiscal Studies (IFS), has been speaking about what left the UK in a position where yesterday’s autumn statement – that will leave more than half of all households worse off – was deemed necessary.

He said: “Let’s start with slashing investment spending, that was something announced under the last Labour government and continued by George Osborne.

“Cutting spending on education, particularly huge cuts to vocational and further education, but also to schools over that period.”

Politics live: Middle England set for a shock’ and higher taxes ‘here to stay’ –

Mr Johnson added that “very clearly, Brexit was an economic own-goal”.

“There may be other reasons for Brexit, but economically speaking that has been very bad news indeed and continues to be bad news, particularly the way that we’ve done it, the hard type of Brexit we’ve had, distancing ourselves from the single market,” he said.

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Mr Johnson also pointed to Ms Truss’s tax slashing mini-budget – which inflicted around £30bn worth of damage as it sent the markets into freefall, the value of the pound plummeting, mortgage rates soaring and forced the Bank of England to intervene to stop pension funds collapsing.

“Obviously the mini-budget of a couple of months didn’t help. In fact, that was another large own-goal,” he said.

Read more: Middle earners facing same tax hit as those on six-figures | Ed Conway

While most of the policies of the short-lived Truss administration have now been reversed, Mr Johnson said the political instability of recent months was also not good for the economy.

“There have been three prime ministers and four chancellors in a few months.

“And to be reversing policy here, there and everywhere, to be uncertain about your trading relationship with the rest of Europe, to have corporation tax going up, down and round and round and round, all of that is bad for growth.”

The chancellor presented his highly-anticipated autumn statement to parliament on Thursday, littered with stealth taxes and curbs on government spending amounting to £55bn in an attempt to plug the black hole in the public finances.

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‘Difficult time for everyone,’ says Hunt

He sought to blame Russia’s invasion of Ukraine for the “global energy crisis, a global inflation crisis and a global economic crisis” and said “we have risen to bigger challenges before”.

But Labour has blamed “12 weeks of Conservative chaos” and “12 years of Conservative economic failure” for the bleak outlook.

The independent Office for Budget Responsibility (OBR) warned the disposable incomes of UK households would fall by 7.1% over the next two years – the biggest drop on record.

Mr Johnson warned that this will “hit everyone”, adding that “middle England is set for quite a shock”.

“The truth is we just got a lot poorer. We are in for a long, hard, unpleasant journey; a journey that has been made more arduous that it might have been by a series of economic own goals,” he said.

Read more: Chancellor’s autumn statement had all hallmarks of a Labour budget | Beth Rigby

As a result of Mr Hunt’s announcements, the tax burden in the UK will now be at its highest since the Second World War, and there are stark warnings about increased bills and higher unemployment as the recession takes hold – as well as predictions the economy will still shrink 1.4% in 2023.

Speaking to Sky News earlier, the chancellor said it was “a difficult time for everyone” but tax hikes and spending cuts are needed to get the economy “on an even keel”.

“Over the next two years it is going to be challenging,” he said.

“But I think people want a government that is taking difficult decisions, has a plan that will bring down inflation, stop those big rises in the cost of energy bills and the weekly shop, and at the same time is taking measures to get through this difficult period.”

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Four big themes as IMF takes aim at UK growth and inflation

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Four big themes as IMF takes aim at UK growth and inflation

Six months ago the International Monetary Fund (IMF) warned that the world economy was heading for a serious slowdown, in the face of Donald Trump’s tariffs.

It slashed its forecasts for economic growth both in the US and predicted that global economic growth would slow to 2.8% this year.

Today the Fund has resurfaced with a markedly different message. It upgraded growth in both the US and elsewhere. Global economic growth this year will actually be 3.2%, it added. So, has the Fund conceded victory to Donald Trump? Is it no longer fretting about the economic impact of tariffs?

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Either way, the World Economic Outlook (WEO), the IMF’s six-monthly analysis of economic trends, is well worth a look. This document is perhaps the ultimate synthesis of what economists are feeling about the state of the world, so there’s plenty of insights in there, both about the US, about far-reaching trends like artificial intelligence, about smaller economies like the UK and plenty else besides. Here, then, are four things you need to know from today’s WEO.

The tariff impact is much smaller than expected… so far

The key bit there is the final two words. The Fund upgraded US and global growth, saying: “The global economy has shown resilience to the trade policy shocks”, but added: “The unexpected resilience in activity and muted inflation response reflect – in addition to the fact that the tariff shock has turned out to be smaller than originally announced – a range of factors that provide temporary relief, rather than underlying strength in economic fundamentals.”

In short, the Fund still thinks those things it was worried about six months ago – higher inflation, lower trade flows and weaker income growth – will still kick in. It just now thinks it might take longer than expected.

The UK faces the highest inflation in the industrialised world

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August: Tax rises playing ’50:50′ role in rising inflation

One of the standard exercises each time one of these reports come out is for the Treasury to pick out a flattering statistic they can then go back home and talk about for the following months. This time around the thing they will most likely focus on is that Britain is forecast to have one of the strongest economic growth rates in the G7 (second only to the US) this year, and the third strongest next year.

But there are a couple of less flattering prisms through which one can look at the UK economy. First, if you look not at gross domestic product but (as you really ought to) at GDP per head (which adjusts for the growing population), in fact UK growth next year is poised to be the weakest in the G7 (at just 0.5 per cent).

Second, and perhaps more worryingly, UK inflation remains stubbornly high in comparison to most other economies, the highest in the G7 both this year and next. Why is Britain such an outlier? This is a question both Chancellor Rachel Reeves and Bank of England governor Andrew Bailey will have to explain while in Washington this week for the Fund’s annual meeting.

What happens if the Artificial Intelligence bubble bursts?

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Nvidia CEO hails UK’s place in global AI race

Few, even inside the world of AI, doubt that the extraordinary ramp up in tech share prices in recent months has some of the traits of a financial bubble. But what happens if that bubble goes pop? The Fund has the following, somewhat scary, passage:

“Excessively optimistic growth expectations about AI could be revised in light of incoming data from early adopters and could trigger a market correction. Elevated valuations in tech and AI-linked sectors have been fuelled by expectations of transformative productivity gains. If these gains fail to materialize, the resulting earnings disappointment could lead to a reassessment of the sustainability of AI-driven valuations and a drop in tech stock prices, with systemic implications.

“A potential bust of the AI boom could rival the dot-com crash of 2000 in severity, especially considering the dominance of a few tech firms in market indices and involvement of less-regulated private credit loans funding much of the industry’s expansion. Such a correction could erode household wealth and dampen consumption.”

Pay attention to what’s happening in less developed countries

For many years, one of the main focuses at each IMF meeting was about the state of finances in many of the world’s poorest nations.

Rich countries lined up in Washington with generous policies to provide donations and trim developing world debt. But since the financial crisis, rich world attention has turned inwards – for understandable reasons. One of the upshots of this is that the amount of aid going to poor countries has fallen, year by year. At the same time, the amount these countries are having to pay in their annual debt interest has been creeping up (as have global interest rates). The upshot is something rather disturbing. For the first time in a generation, poor countries’ debt interest payments are now higher than their aid receipts.

I’m not sure what this spells. But what we do know is that when poor countries in the Middle East and Sub-Saharan Africa face financial problems, they often face instability. And when they face instability, that often has knock on consequences for everyone else. All of which is to say, this is something to watch, with concern.

The IMF’s report is strictly speaking the starting gun for a week of meetings in Washington. So there’ll be more to come in the next few days, as finance ministers from around the world meet to discuss the state of the global economy.

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UK to have highest inflation in G7, IMF says

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UK to have highest inflation in G7, IMF says

Price rises in the UK are to be the highest among the G7 club of industrialised nations, according to the International Monetary Fund (IMF).

Inflation will be the highest among the club both this year and next, the world’s lender of last resort has said in its World Economic Outlook.

It is an unexpected increase from the IMF’s July forecast.

Money blog: State pension to rise more than expected

There was mixed news elsewhere in the outlook, as the UK’s economic growth forecast, as measured by GDP, was revised up for this year but revised down for next.

Latest data showed inflation stood at 3.8% and is forecast by the Bank of England to reach 4% by the end of the year.

The IMF, however, said it expected inflation to average at 3.4% in 2025, up from its previously predicted 3.2%.

That is forecast to slow to 2.5% this year, higher than the 2.3% anticipated just three months ago.

Food and services inflation had been particularly high in recent months due to rising wage bills and poor harvests.

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Economic growth will be a higher 1.3% this year, up from the 1.2% forecast in July, thanks to a strong first few months of the year.

Next year, however, GDP will be 1.4% rather than 1.3% as economies across the world feel trade pressures.

Political reaction

Chancellor Rachel Reeves said: “This is the second consecutive upgrade to this year’s growth forecast from the IMF.

“But know this is just the start. For too many people, our economy feels stuck. Working people feel it every day, experts talk about it, and I am going to deal with it.”

Shadow chancellor Sir Mel Stride said the IMF assessment made for “grim reading”.

“Since taking office, Labour have allowed the cost of living to rise, debt to balloon, and business confidence to collapse to record lows,” he said.

“Working people are feeling the impact every time they shop, fill up the car, or pay their mortgage.”

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Getting a job becomes harder with fewer vacancies – official ONS figures

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Getting a job becomes harder with fewer vacancies - official ONS figures

The jobs market continued to slow, with 9,000 fewer vacancies in the three months to September, official figures show.

It is the 39th consecutive period where vacancy numbers have dropped.

Having fewer job openings can mean it is harder to find work.

Money blog: Big retirement age surprise awaits 14% of Britons

There was also a surprise increase in the unemployment rate, up to 4.8% from 4.7% a month earlier, primarily driven by younger people, as a record number of people over 65 are in work, the Office for National Statistics (ONS) said.

Economists polled by Reuters anticipated no change in the jobless rate, but instead the figure is now the highest since the three months to May 2021, when the country was in lockdown due to the COVID-19 pandemic.

The ONS, however, has advised caution when interpreting changes in the monthly unemployment rate and job vacancy numbers due to concerns over the reliability of the figures.

More on Uk Economy

The labour market has struggled in recent months as the cost of employing staff became more expensive due to higher employers’ national insurance contributions and an increased minimum wage.

Wage rises slowing

Further signs of a slowing labour market were seen in the fall of annual private sector wage growth to the lowest rate in nearly four years – 4.4%.

Public sector pay growth increased more quickly, at 6%, as some public sector pay rises were awarded earlier than they were last year.

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Inflation up: the bad and ‘good’ news

Average weekly earnings rose more than expected by economists at 5% and also more than previously thought after a revision to last month’s figures (4.8%).

Also published by the ONS was data on industrial action, which showed August had the fewest working days lost to strike action in a single month for nearly six years.

What does it mean for interest rates?

While a tough job market is difficult for people looking for work, the slowing wage rises can mean interest rates are brought down.

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The rate-setters at the Bank of England had been concerned about the effect higher wages could have on inflation, which it is mandated to bring to 2% though latest figures showed it was at 3.8%.

Following today’s figures, traders expect a cut in the interest rate to 4.75% in December.

No change is anticipated at the next interest rate setter meeting in November.

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