Budget 2023: UK economy will avoid recession in 2023 and inflation set to plummet, says chancellor
Jeremy Hunt said the British economy is “proving the doubters wrong” and will avoid recession, as he delivered his first full budget speech to Parliament.
The chancellor said the government’s plan for the economy was “working” as he announced what he called a “budget for growth”.
He said forecasts from the Office for Budget Responsibility (OBR) showed the UK would avoid recession – two-quarters of negative growth – in 2023, despite previous predictions.
But the economy will still contract overall this year by 0.2%, and the OBR has warned living standards are still expected to fall by the largest amount since records began – although the decline is not as bad as had been forecast in November.
Budget 2023 – read more:
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The OBR forecasts also said inflation in the UK would fall from 10.7% in the final quarter of last year to 2.9% by the end of 2023.
Mr Hunt said it showed Rishi Sunak’s goal of halving inflation this year would be met, but he added: “We remain vigilant and will not hesitate to take whatever steps are necessary for economic stability”.
However, Labour leader Sir Keir Starmer said the chancellor’s “boasts” about lower inflation were “ridiculous”, adding: “The idea that it’s a tax cut, British people can see through that.
“They see their tax burden at its highest level for 70 years and they know it’s not the government that’s lowering inflation.
“It’s working people, earning less, enjoying less. It’s their sacrifice that is helping to bring inflation down and they deserve better than another cheap trick from the government of gimmicks, making them pay whilst trying to claim the credit.”
Interest Rate Expectations
A number of other plans were unveiled by Mr Hunt, including:
• Bringing charges for prepayment meters in line with direct debit charges, impacting over four million households and saving them an average of £45 per year
• Making duty on draught products in pubs up to 11p lower than supermarkets
• Maintaining the freeze in fuel duty
The chancellor also said £11bn will be added to the defence budget over the next five years – following an announcement earlier this week – saying it would be nearly 2.25% of GDP by 2025. The government’s ambition is for it to reach 2.5%, he added.
And after reports he would increase the pensions lifetime allowance to £1.8m in an attempt to encourage doctors and other high earners back to work, Mr Hunt decided to scrap the limit entirely, as well as increasing the pensions annual tax-free allowance from £40,000 to £60,000.
He told the Commons: “In the face of enormous challenges I report today on a British economy which is proving the doubters wrong.
“In the autumn we took difficult decisions to deliver stability and sound money. Since mid-October, 10-year gilt rates have fallen, debt servicing costs are down, mortgage rates are lower and inflation has peaked.
“The International Monetary Fund says our approach means the UK economy is on the right track.”
But Sir Keir said the only permanent tax cut in the budget was for “the richest 1%”, adding: “How can that possibly be a priority for this government?”
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‘This a failure you can measure not just in the figures but in the empty pockets of working people,’ says the Labour leader.
The Labour leader continued: “Again we see a failure to grip the long-term challenges. No determination to create growth that unlocks the potential of the many – working people being made to pay for Tory choices and Tory mistakes.”
Some policies were revealed ahead of the chancellor’s speech, including keeping the cap on energy prices at £2,500 for a further three months, despite a planned rise to £3,000 in April, and 12 new investment zones.
Sky News also reported last night his promise to provide 30 hours of childcare a week to parents of one and two-year-olds, and to give a further cash injection to the sector to increase the availability of existing free childcare for three to four-year-olds.
But Mr Hunt went further on this measure, saying the care would be available from September 2024 when a child reaches nine months, as well as promising to increase funding for nurseries and pay those on Universal Credit upfront for the childcare they need to get.
However, he also confirmed the ratio for how many children each staff member looks after can be raised from one per four to one per five – though he said it was optional for both providers and parents.
There were more announcements to fit with Mr Hunt’s “three E’s” philosophy – enterprise, employment and education.
They included:
• Incentive payments of up to £1,200 for childminders who sign up to the profession
• Enhanced credit for small and medium businesses, and creative firms
• An extension to relief for theatres, orchestras and museums
• Tax relief on energy efficient measures in firms
• £900m investment into supercomputing
The chancellor also confirmed widely reported plans to abolish the Work Capability Assessment for disabled people to “separate benefit entitlement from an individual’s ability to work”.
Mr Hunt promised a new programme called Universal Support, describing it as “a new, voluntary employment scheme for disabled people where the government will spend up to £4,000 per person to help them find appropriate jobs and put in place the support they need”.
And he said there would be a £400m fund to help those who are forced to leave work because of a health condition to get support in the workplace.
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Chancellor Jeremy Hunt MP has announced that the energy price guarantee will remain at £2,500 until the end of June.
Mr Hunt confirmed he would keep the incoming rise in corporation tax – from 19% to 25% – despite anger from some of his own backbenchers.
But in a bid to keep businesses happy, he introduced a new benefit where every pound a company invests in equipment can be deducted in full and immediately from taxable profits – “a corporation tax cut worth an average of £9bn a year for every year it is in place”.
In what appeared to echo recent Labour policy, the chancellor announced continued state-financed investment in nuclear power and the launch of Great British Nuclear, saying the public body will “bring down costs and provide opportunities across the nuclear supply chain to help provide up to one quarter of our electricity by 2050”.
And he said nuclear energy would be reclassified as “environmentally sustainable” to give it the same access to investment incentives as renewables.
Today’s statement was Mr Hunt’s first full budget as chancellor – having been brought in by Liz Truss to reverse a number of measures from her disastrous mini-budget last October and kept on by Rishi Sunak after he took over as prime minister.
It came against a backdrop of mass industrial action, with hundreds of thousands of workers today staging what is believed to be the biggest walkout since the current wave of unrest began.
Teachers, university lecturers, civil servants, junior doctors, London Underground drivers and BBC journalists are among those taking to picket lines around the country amid widespread anger over pay, job security, pensions and conditions.
Labour’s shadow chancellor, Rachel Reeves, said ahead of the budget that it was “an opportunity for the government to get us off their path of managed decline”.
She added, if her party were in power, their focus would be on securing the highest growth in the G7.
“Our plan will help us lead the pack again, by creating good jobs and productivity growth across every part of our country, so everyone, not just a few, feel better off,” she added.
Our politics, business and finance reporters will be hosting a Q&A after the budget statement. To submit a question, click here.
Pakistan has launched attacks on “multiple targets” across India, according to the media wing of Pakistan’s military.
Pakistan said in a statement that retaliatory attacks are underway in response to what it called “continuous provocation” by India, which fired missiles at three air bases inside Pakistan.
“Multiple targets in this operation are being engaged all across India,” the statement from Pakistan Armed Forces (PAF) said.
Pakistan’s military said it used medium-range Fateh missiles to strike more than 25 military sites, including airbases and weapons depots in the Indian states of Gujarat, Punjab and Rajasthan, as well as locations in India-administered Kashmir.
Pakistan’s military posted footage on X showing missiles being fired from what appeared to be a mobile launcher.
Pic: MilitaryPakISPR
The AP news agency also said loud explosions have been heard in India-administered Kashmir, in the disputed region’s two big cities of Srinagar and Jammu, and the garrison town of Udhampur.
Meanwhile, an Indian military source told Reuters that India has launched air operations in Pakistan, although no further details were given.
The operations mark the latest escalation in a conflict between the two nuclear-armed rivals, triggered by a deadly attack last month in India-administered Kashmir.
Most of the 26 civilians killed were Hindu Indian tourists. India blames Pakistan for backing the assault, an accusation Islamabad rejects.
Pakistan’s Prime Minister Shehbaz Sharif has called a meeting of the National Command Authority, the body which takes security decisions, including those related to the country’s nuclear arsenal.
State-run Pakistan television said three air bases were struck by India on Friday, although Pakistan insisted most of the missiles had been intercepted.
Despite the military offensive, PAF also posted a message on X in what appeared to represent an opportunity to de-escalate the situation.
“Now that a response has been given we hope the neighbour [India] will move to dialogue and diplomacy like Civilized Nations,” it said.
In recent days, both countries have launched a series of missile and drone strikes, although the scale and impact have been consistently questioned by each other.
On Wednesday, India conducted airstrikes on several sites in Pakistani territory. Pakistan said it shot down five Indian fighter jets.
On Thursday, India claimed to have repelled drone and missile attacks at military targets in more than a dozen cities and towns, including Jammu in India-administered Kashmir. Meanwhile, India claimed it struck Pakistan’s air defence systems and radars close to the city of Lahore.
A damaged house in Jammu, in Indian-administered Kashmir, after a Pakistani drone attack. Pic: AP
The Indian army said on Friday that Pakistan fired about 300 to 400 drones, targeting military installations along the western borders – a claim strongly denied by Pakistan.
The G7 group of advanced economies, which includes Canada, France, Germany, Italy, Japan, the US and Britain, urged maximum restraint from both India and Pakistan.
“We call for immediate de-escalation and encourage both countries to engage in direct dialogue towards a peaceful outcome,” a statement issued on Friday said.
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World
European leaders to meet in Ukraine for ‘coalition of the willing’ talks – and issue call to Russia
Sir Keir Starmer will join other European leaders in Kyiv on Saturday for talks on the “coalition of the willing”.
The prime minister is attending the event alongside French President Emmanuel Macron, recently-elected German Chancellor Friedrich Merz and Polish Prime Minister Donald Tusk.
It will be the first time the leaders of the four countries will travel to Ukraine at the same time – on board a train to Kyiv – with their meeting hosted by President Volodymyr Zelenskyy.
Follow latest updates on the Ukraine war
Sir Keir Starmer, Emmanuel Macron and Friedrich Merz travelling in the saloon car of a special train to Kiev. Pic: Reuters
Military officers from around 30 countries have been involved in drawing up plans for the coalition, which would provide a peacekeeping force in the event of a ceasefire being agreed between Russia and Ukraine.
Ahead of the meeting on Saturday, Sir Keir, Mr Macron, Mr Tusk and Mr Merz released a joint statement voicing support for Ukraine and calling on Russia to agree to a 30-day ceasefire.
Sir Keir and Volodymyr Zelenskyy during a meeting in March. Pic: AP
“We reiterate our backing for President Trump’s calls for a peace deal and call on Russia to stop obstructing efforts to secure an enduring peace,” they said.
“Alongside the US, we call on Russia to agree a full and unconditional 30-day ceasefire to create the space for talks on a just and lasting peace.”
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Putin’s Victory Day parade explained
The leaders said they were “ready to support peace talks as soon as possible”.
But they warned that they would continue to “ratchet up pressure on Russia’s war machine” until Moscow agrees to a lasting ceasefire.
“We are clear the bloodshed must end, Russia must stop its illegal invasion, and Ukraine must be able to prosper as a safe, secure and sovereign nation within its internationally recognised borders for generations to come,” their statement added.
“We will continue to increase our support for Ukraine.”
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Ukraine and Russia accuse each other of breaching ceasefire
Listen to The World with Richard Engel and Yalda Hakim every Wednesday
The European leaders are set to visit the Maidan, a central square in Ukraine’s capital where flags represent those who died in the war.
They are also expected to host a virtual meeting for other leaders in the “coalition of the willing” to update them on progress towards a peacekeeping force.
This force “would help regenerate Ukraine’s armed forces after any peace deal and strengthen confidence in any future peace”, according to Number 10.
World
Ten explosions near international airport in India-administered part of Kashmir, officials say
Ten explosions have been heard near Srinagar International Airport in India-administered parts of Kashmir, officials have told Reuters news agency.
The blasts followed blackouts caused by multiple projectiles, which were seen in the sky above the city of Jammu earlier on Friday.
Explosions were also heard in the Sikh holy city of Amritsar, in the neighbouring Punjab state, according to Reuters.
An Indian military official told the agency that “drones have been sighted” and “they are being engaged”.
It comes as tensions between India and Pakistan across the line of control around the region of Kashmir have boiled over this week, leading to fears of a wider conflict.
On Wednesday morning, India carried out missile strikes in Pakistan and Pakistan-administered parts of the disputed region.
The retaliation came weeks after 26 people, mainly Indian tourists, were shot dead by gunmen in an India-administered part of Kashmir last month.
The government in India said it hit nine “terrorist infrastructure” sites, while Pakistan said it was not involved in the April attack and the sites were not militant bases.
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Explained: India-Pakistan conflict
Around 48 people have been killed since Wednesday, according to casualty estimates on both sides – which have not been independently verified.
India also suspended its top cricket tournament, the Indian Premier League, as a result of rising tensions, while the Pakistan Super League moved the remainder of its season to the United Arab Emirates.
Meanwhile, White House press secretary Karoline Leavitt said at a conference on Friday that the US is in constant contact with both India and Pakistan.
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