Tax rises now ‘a good bet’ this year as Rachel Reeves risks economic ‘doom loop’ after grim budget, experts warn
PAINFUL tax hikes at the next Budget are a “good bet” as Britain at risk of an economic “doom loop”, experts say.
Rachel Reeves will be under pressure to raise taxes or cut spending after borrowing hit £18 billion which was the highest December figure for four years.
Most experts predicted would be £14 billion but was mainly driven by soaring interest payments, spending on public services and benefits payments.
The Chancellor is facing pressure as growth is sluggish and the government’s number one mission is to grow the economy.
But analyst Elliott Jordan-Doak, from Pantheon Macroeconomics said: “The chancellor is already under pressure to clarify how the government will meet its new fiscal rules.
“We expect the government to outline spending reductions – backloaded towards the end of the forecast year – at the next fiscal event in March.
“Further tax increases at the next budget in October, is also a good bet.”
Alex Kerr, expert at Capital Economics, added that the Chancellor “may need to raise taxes and/or cut spending in the next fiscal statement on 26 March”.
Meanwhile, ex-Bank of England chief economist said the UK is at risk of entering an economic “doom loop” if spending continues to be cut.
He says the Office of Budget Responsibility will deliver its forecast at the end of March which could trigger less investment and spending.
Speaking to Sky News’ Politics Hub with Sophy Ridge, he said: “It would be deeply counterproductive to both growth and to the fiscal position if that led to a cutting back on investment and indeed in spending more generally.
“Then I think you really are into a doomed loop between debt and growth. And that’s a situation to avoid at all costs.”
He was also more upbeat for the second half of the year.
He said: “I think once we get to the second half of the year, the underlying fiscal picture may look somewhat better as might be the underlying growth picture.”