In his Spring Budget, unveiled on 15 March, the Chancellor said that the Office for Budget Responsibility has predicted that the UK won’t enter a recession.
Chancellor Jeremy Hunt has today unveiled his Spring Budget and announced that the UK won’t go into recession. Although the UK economy is set to shrink this year, it will technically avoid a recession, according to the Office for Budget Responsibility (OBR). A recession is defined as two consecutive three-month periods of decline. The OBR expects the size of the economy to fall by 0.2% this year and grow by 1.8% next year.
Jeremy Hunt said that the OBR has predicted that inflation will more than halve this year, with a fall from 10.7% at the end of last year to 2.9% by the end of 2023. Inflation is now currently sitting at 10.1%.
He said that international changes, along with steps the government has taken, have prevented a recession.
Spring budget in summary
Some of the other key announcements in the budget include:
• The energy price guarantee cap – previously due to end in April – will remain in place at £2500 for the next three months, meaning annual energy bills are capped at this amount until the end of June
• Fuel duty has been frozen – the 5p cut on petrol and diesel, which was due to end in April, will remain for another year
• The cap on the amount workers can accumulate in pension savings over their lifetime before paying extra tax will be abolished
• The tax-free yearly allowance for pension pots will rise from £40,000 to £60,000
• In an effort to keep public leisure centres and swimming pools open, the Chancellor will provide a £63 million fund
• The government has extended the current 30 hours of free childcare to children from nine months old. The funding is currently offered to children who are three to four years old but will now cover younger children so that parents are enticed back to work sooner. The overall aim is to boost economic growth.
• Businesses will still be hit by the corporation tax rise in April, but the Chancellor claims that only 10% of companies will pay the full 25% tax rate
What about the base rate?
You may wonder what the predictions for falling inflation will mean for the base rate. The Bank of England has increased the base rate consistently over the last year in a bid to combat inflation. There is another base rate review next Thursday, 23 March.
Depending on who you talk to, you may get different views about whether there will be another increase. Some industry experts believe the base rate will remain at 4%, while others feel there is room for a 0.5% increase. We will let you know the outcome of the base rate review next Thursday.