PRESS RELEASE : Economic downturn should keep the Chancellor cautious [November 2022]
The press release issued by the IEA on 11 November 2022.
Commenting on the latest UK GDP figures published today, Julian Jessop, Economics Fellow at free market think tank the Institute of Economic Affairs, said:
“The latest UK GDP figures were not as bad as many had expected, but the downward trajectory is clear. The Chancellor needs to tread very carefully in his Budget next week.
“The 0.2 per cent fall in GDP in the three months to September was smaller than the 0.5 per cent pencilled in by the Bank of England, partly due to upward revisions to monthly GDP in both July and August. The economy might not have shrunk at all without the extra Bank Holiday for the Queen’s funeral.
“Nonetheless, the data for the third quarter were also flattered by large positive contributions from government spending and from net exports. Household spending and business investment were both much weaker, and the more timely consumer and business surveys point to further declines in the fourth quarter.
“Whatever the official numbers say, this will feel like a recession to those struggling to pay their bills over the winter. There are early signs too that the labour market is softening.
“The Chancellor should therefore take a more flexible approach to the Budget. The pendulum appears to be swinging too far from the botched ‘pro-growth’ strategy of Truss and Kwarteng back to the old ‘doom loop’ of tighter fiscal policy and a deeper recession. The Chancellor is also in danger of fetishising estimates for the size of the fiscal ‘black hole’, which is highly uncertain.
“If the Chancellor is determined to press ahead with austerity, whether through tax increases or spending cuts, he should at least time the measures carefully. It would make no sense to slam the brakes on straightaway when the economy is so fragile.
“Instead, he should delay the bulk of the hit until the back end of the five-year horizon. This should still allow him to present a credible medium-term plan to keep the financial markets on board, and therefore reduce the upward pressure on interest rates, without tipping the economy over now.”
