Chancellor’s last throw of the dice: Hunt to hail turning point for economy in do-or-die Budget ahead of election

The economy has taken a turn.

That has been Jeremy Hunt’s mantra as Britain emerges from a recession, and it is likely to be repeated in today’s Budget.

Labour’s charge, however, is that the Conservatives have collapsed the economy.

Indeed, Britain’s resilience has proven the most pessimistic forecasts wrong. However, growth – just 0.1 percent in 2023 – has been nothing to write home about.

That is why today’s budget will be crucial for many. It is “the last roll of the dice before the election”, according to Sir Martin Sorrell, chief executive of marketing firm S4 Capital and one of the city’s most influential voices.

Britain’s recent sluggish economic performance looks anemic compared to the United States, where growth has taken off fueled by multibillion-dollar subsidies.

But it is doing better than its rivals on the continent, something that has been achieved despite numerous warnings that Brexit would leave the UK reeling while the EU moved full speed ahead.

Indeed, the Chancellor will boast today that UK growth under Conservative-led governments since 2010 has been greater than that of all major European economies.

Britain suffered a setback last year when GDP contracted by 0.1 percent in the third quarter and again by 0.3 percent in the final three months of 2023.

Two straight months of contraction meant the UK was technically in recession. However, Bank of England Governor Andrew Bailey has noted that it was the mildest recession there has been since at least the 1970s, and signs since early 2024 are that things are starting to improve.

Mr Hunt received a further boost yesterday when a closely watched business survey showed the services sector enjoyed a fourth consecutive month of growth in February.

This showed a “sustained rebound in business activity after last fall’s slowdown,” according to the Purchasing Managers’ Index (PMI) report. And business optimism reached the highest level in two years.

Tim Moore, chief economics officer at S&P Global Market Intelligence, which compiled the figures, echoed Hunt’s language, saying it “adds to signs that the UK economy has turned a corner”.

Service businesses – ranging from bars and restaurants to law firms and accountants – account for four-fifths of economic output.

However, their counterparts in the manufacturing sector (a much less important but perhaps more visible form of economic production) are struggling due to supply chain disruption and weak demand. But Britain is outperforming the eurozone on both counts.

What can be done to turn the weak movement of life in the UK’s economic engine into the purr of a nation driving at full speed? As always, the Chancellor will be pressured from all directions by those who claim to have the answer.

With the tax burden on families and businesses heading to its highest level in 70 years, pressure is mounting for tax cuts as the election approaches.

Sorrell argued that a longer-term plan was needed to boost investment. He wants inheritance tax and stamp duty scrapped and capital gains taxes cut to help breathe life into the economy.

Defense and health will be among the many areas in which, on the other hand, additional spending will be required.

Hunt will also be mindful of tackling long-term issues such as chronic illness (which is at record levels) and the moribund state of the London stock market (as low valuations make companies easy prey for foreign buyers). ).

And all this must be achieved without upsetting financial markets, amid suggestions that traders, already nervously eyeing Britain’s huge debt, will be eager to sell UK bonds if there is any sign that debt sums will Chancellor they don’t add up.

Balancing the tax and spending aspects of the budget equation will be easier if growth improves, generating more revenue for the Treasury.

But here, the Chancellor looks likely to be hamstrung if – as economists expect – the independent Office for Budget Responsibility lowers GDP forecasts.

Kallum Pickering, senior economist at private bank Berenberg, said: ‘It looks like Hunt will announce some tax cuts.

“But with limited fiscal space, we doubt that modest tax cuts can do much to help the Conservatives close their 20 percentage point gap in the polls against Labour, who remains on course for a landslide victory.”

Mike Coop, chief investment officer at fund manager Morningstar Investment Management Europe, said: “We see very limited scope for major changes to taxes, spending, lending or regulations.

“The Government is severely cornered by a ferocious quartet of large debts, anemic growth, threadbare public services and high tax rates.”