The UK will avoid a technical recession this year with inflation falling below 3%, the chancellor of the exchequer confirmed on Wednesday, as he unveiled a ‘budget for growth’.
In his first March budget since becoming chancellor last autumn, Jeremy Hunt said the British economy was “proving the doubters wrong”, and that inflation had now peaked.
The Office for Budget Responsibility now expects inflation to fall from 10.7% at the end of 2022 to 2.9% by the end of 2023. It also forecast that the UK will narrowly avoid a technical recession this year, although the economy will still contract by 0.2%.
GDP is then forecast to grow by 1.8% in 2024 and 2.5% in 2025, although that rate will ease to 2.1% and 1.9% in 2026 and 2027 respectively.
In November the OBR forecast GDP to fall by 1.4% this year, but to grow by 2.5% in 2025, by 2.1% in 2026 and 2.2% in 2027.
Hunt also unveiled a number of measures – most of which had been widely trailed before the budget – aimed at boosting productivity and growth, with a focus on “removing obstacles that stop businesses investing, tackling labour shortages [and] breaking down barriers that stop people working”.
He confirmed the annual allowance – which sets how much a worker can save in pension pots before paying tax – will increase to £60,000 from £40,000, while the lifetime allowance, which most thought would rise, would be scrapped entirely. The lifetime allowance is the amount of savings that can be set aside before being eligible for tax.
Both measures are aimed at keeping professionals such as senior doctors in work for longer.
Sanctions will also be applied “”more rigorously”, meanwhile, for those on universal credit who are deemed not to be looking hard enough for work.
The UK’s higher-than-average childcare costs were also addressed. Hunt said 30 hours of free childcare a week, which is currently only available for children aged three and four of working parents, would be extended to include children from nine months.
The changes are to be introduced in stages, and it will not be until September 2025 that all under-fives of working parents will be covered.
Looking to the wider economy, Hunt said he would establish 12 investment zones in cities around the country, which he dubbed “12 potential Canary Wharfs”.
He declined to keep corporation tax at 19%, instead confirming that it will go up to 25% in April as planned.
But he said the impact would be potentially offset by “full capital expensing” for the next three years, with the intention of making it permanent “as soon as we can responsible do so”. Under the plans, Hunt said every pound a company invests in IT equipment, plant or machinery can be deducted “in full and immediately” from taxable profits.
