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Spring Statement 2023: Our Chief Economist’s view
In general, the budget is pro-growth and the targeted reliefs should help offset the impact of higher corporate tax rates.
We are, however, sceptical, about the forecast that inflation will fall below 3% by the end of the year. On the one hand, the Chancellor opts for growth; on the other, he wants to fight inflation. Clearly conflicting targets. The OBR’s inflation forecast is less than half of that expected by the majority of economists. Developed markets as a whole are expected to see year-end inflation above 5% so 2.9% in the UK is ambitious.
Whilst the OBR may indeed be right. The UK may avoid a technical recession this year, this is still an optimistic forecast and it is hard to see how increasing demand will help halt price growth.
An independent Bank of England could, all other things being equal, become more hawkish after this budget statement, in its bid to lower demand and stem inflation so the interest rate rises may yet exceed market expectations.
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