British Finance Minister Jeremy Hunt said Wednesday that the U.K. economy would not enter a technical recession in 2023, as was previously anticipated.
The updated outlook was based on new forecasts from the independent Office for Budget Responsibility, Hunt said.
A technical recession takes place when a country observes two consecutive quarters of contractions in its real GDP.
The Chancellor of the Exchequer said that the U.K. economy was “proving the doubters wrong,” following earlier predictions, including from the Bank of England, that the country was facing its longest-ever recession.
In its revised outlook, the OBR said it predicts that the economy will contract by 0.2% this year. During the Autumn Statement last November, it had said that the economy would shrink by 1.4% in 2023.
The OBR also on Wednesday said that it expects inflation to fall to 2.9% by the end of 2023, meaning that the pace of price rises would be slower than anticipated and sit well below the highs of 11.1% recorded in October.
The rate of inflation currently stands at 10.1%, although the target level is 2%.
“They forecast we will meet the prime minister’s priorities to halve inflation, reduce debt and get the economy growing,” Hunt said.
Workforce reforms
In a slew of spending announcements, Hunt raised the pension allowance for higher earners in an effort to stem early retirement and improve the country’s chronic worker shortage.
The Chancellor of the Exchequer increased the cap on tax-free annual pension contributions to £60,000 ($73,000) from £40,000. He also abolished the lifetime allowance on tax-free pension pots, which was previously capped at £1 million.
“I don’t want any doctor to retire early because of the way pension taxes work,” Hunt said, announcing the country’s annual spending budget in the House of Commons.
″[But] the issue goes wider than doctors. No one should be pushed out of the workforce for tax reasons,” he said.
The new tax-free pensions allowance, which follows a six-year freeze on the annual and lifetime limit announced in 2020, aims to reduce the number of high-earning, older professionals, especially doctors, leaving the workforce ahead of the state retirement age.
In the U.K., taxpayers who save more than the lifetime allowance must pay a 25% levy on additional income from their pension or a 55% tax if they withdraw it as a lump sum.
The changes come as the U.K. economy, already beleaguered by sky-high inflation and widespread industrial action, faces labour shortages and record numbers of workers reporting long-term sickness.
The number of “economically inactive” people — those neither working nor looking for a job — between the ages of 16 and 64 has rose by more than 630,000 from 2019 to 2022.
Unlike other major economies, recent U.K. data shows no sign that those lost workers are returning to the labour market, even as inflation and energy costs exert huge pressure on household finances.
Source: CNBC
Image: AP
