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Economists have cautioned that Jeremy Hunt’s decision to decrease national insurance may result in interest rates remaining elevated until the summer of 2024.
The NIC was reduced by the chancellor by 2%, however, financial analysts suggest that the Bank of England may have to maintain high rates for a longer period.
The OBR has updated its projections for inflation, stating that it will be higher than originally predicted following Mr Hunt’s autumn statement.
There are concerns that the central bank may need to maintain the base interest rate at 5.25 percent until summer, despite widespread expectations that it would be lowered in the spring.
According to economist George Buckley from Nomura, the current level of additional financial aid may not be as significant as that provided in March, but it still contributes to the argument for maintaining the current interest rates for a longer period of time. This statement was reported by The Telegraph.
Citi economist Benjamin Nabarro predicts that the Bank of England will delay lowering interest rates and believes that Mr. Hunt will reduce taxes once more in the spring.
The speaker anticipates that both sets of tax cuts will delay the Bank of England’s rate cuts until the third quarter. They believe that these tax cuts will also lead to a more “hawkish” approach to interest rates.
Richard Hughes, the head of the OBR, stated that the watchdog was not worried about the potential inflationary effects of the autumn statement. He clarified on Thursday that this was due to the fact that borrowing had not changed.
During a briefing with reporters after the statement was released, Mr. Hughes refused to comment on whether inflation could have decreased at a faster rate without Mr. Hunt’s tax cuts.
However, the OBR has adjusted its official projections, predicting a decrease in inflation to 2.8% by the end of 2024 and reaching the Bank of England’s target of 2% in 2025.
The OBR’s latest projection shows a higher inflation rate compared to their previous estimate in the spring. They had originally predicted a 0.9% inflation rate for 2024.
A high-ranking Conservative official has denied claims that Mr Hunt is preparing to implement a budget reduction strategy similar to that of George Osborne.
“I do not foresee a period of austerity for us,” stated Mel Stride, the secretary of work and pensions, in an interview with ITV’s Good Morning Britain.
The IFS cautioned that the autumn statement will lead to even more severe public sector reductions than the austerity measures implemented by the Conservative government in the 2010s.
The IFS and other major economic organizations have stated that the chancellor effectively allocated £20bn for tax reductions in the autumn statement by opting not to safeguard certain departments.
When questioned on LBC about whether Britain was headed for “austerity mark two,” Mr. Stride responded, “I do not believe that is the direction we are heading in at all.”
When questioned about the significant reduction in government spending, Mr. Hunt argued on the News Agents podcast that it was too progressive to ask such inquiries. He maintained that implementing tax cuts to encourage economic growth would generate more funds for the government.
According to him, your suggestion is that the only solution to increase funds for public spending is to allocate a larger portion of the budget towards it and decrease tax cuts. However, Conservatives hold the belief that it is possible to expand the overall budget size.
In a positive development for both Mr Sunak and Mr Hunt, the government has announced that Nissan will manufacture two additional electric car models at its Sunderland facility.
The Prime Minister denied worries that his net zero policies have damaged investor trust in the UK, emphasizing the assurances given by numerous companies to Britain.