The UK economy is set to contract this year yet avoid a technical recession due to the changing global developments and support measures taken by the government, Chancellor Jeremy Hunt said in his budget speech on Wednesday. The Office for Budget Responsibility, also known as the OBR, forecast the economy will not enter a recession at all this year with a contraction of just 0.2 percent, Hunt said as he presented the spring budget statement in the parliament. A technical recession is defined as two consecutive quarters of output decline.
In the autumn statement in November, the government had forecast the economy to enter a recession last year and a 1.4 percent shrinkage in GDP this year.
"And after this year the UK economy will grow in every single year of the forecast period: by 1.8 percent in 2024; 2.5 percent in 2025; 2.1 percent in 2026; and 1.9 percent in 2027," the chancellor added.
The unemployment rate is projected to rise by less than one percentage point to 4.4 percent, with 170,000 fewer people out of work compared to the Autumn forecast.
Hunt reaffirmed that one of the top economic priorities of the Rishi Sunak government is to halve inflation.
The OBR forecast inflation to fall from 10.7 percent in the final quarter of 2022 to 2.9 percent by the end of 2023.
The chancellor blamed high inflation as the root cause for the series of nationwide strikes in recent months.
"We will continue to work hard to settle these disputes but only in a way that does not fuel inflation," Hunt said.
The chancellor also affirmed the government's steady support for the Bank of England Monetary Policy Committee's efforts to return inflation to the 2 percent target.
Hunt extended the Energy Price Guarantee of GBP 2,500 for the next three months, until an expected fall in energy prices from July.
The chancellor also announced freezes on alcohol and fuel duties as part of the government's inflation-fighting efforts. Their combined impact reduces CPI inflation by nearly 0.75 percent this year, lowering inflation when it is particularly high, Hunt said.
In view of the upcoming corporation tax rise in April, the chancellor announced the capital expensing allowances for companies for their investments in areas like information technology, and plant and machinery for the next three years.
These deductions are expected to boost business investment by 3 percent for every year it is in place, Hunt said.
The chancellor also expanded the 30 hours free childcare for every child under the age of 5 years.
The pensions annual tax-free allowance was raised by 50 percent from GBP 40,000 to GBP 60,000.
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