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Wednesday, October 5, 2022

Britain’s costly step behind from the brink of recession

Inflationary Recession: With one of the highest inflation rates in the world after rising energy costs, a very tight labor market and a falling pound sterling, Britain has been in the eye of a storm this year. Meanwhile, growth has been hit by a sharp drop in consumer income, government tax collection, low productivity and Brexit. The non-financial spending of over 7% of GDP by the new truce government is a mixed blessing for investors. Large bounties of fiscal and energy support mitigate the impending recession and sharply reduce peak inflation, but at the risky cost of more debt and inflationary pressures. This is affecting the British pound and the bond market (see chart). But the FTSE 100’s performance this year is a reminder that stock economies are not the same.

Spent: Friday’s UK emergency budget “growth plan” is set to deliver around £30bn in tax cuts, the equivalent of more than 1% of GDP. This would include removing the 1.25% Social Security increase from the beginning of this year, as well as delaying the corporate tax from 19% to 25% in April 2023. Less likely, but possible, is to cut the tax on home purchases from 2% to 12%. Prices are up an average of 7% this year, and are already the best performing assets in the markets. The tax cut comes on top of £150bn of energy crisis aid for consumers (for two years) and businesses (for six months). This is equivalent to 6% of GDP.

influence: This resounding support is welcome in the short term, allowing the UK to bounce back from the brink of stagflation. This is evident in the recent ‘less poor’ performance of sensitive assets like the FTSE 250. But this would worsen the UK’s huge 6% budget deficit and almost 100% of debt/GDP, while also working against the Bank of England, which tends to quell inflation and raise interest rates by impacting the economy. increasing from. This will keep investors on their toes and pressure on sterling and bond prices.

World Nation News Desk
World Nation News Deskhttps://worldnationnews.com/
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