Chancellor Archives - Taking Stock

March 14, 2025March 14, 2025

UK economy unexpectedly shrank by 0.1% in January 2025

The UK economy faced an unexpected contraction of 0.1% in January, marking a surprising downturn following a 0.4% growth in December 2024

This decline, reported by the Office for National Statistics (ONS), has raised concerns about the nation’s economic trajectory, particularly as the government prioritizes boosting growth.

The contraction was primarily attributed to a slowdown in manufacturing, alongside weak performances in oil and gas extraction and construction.

The ONS noted that while the economy shrank in January 2025, the broader three-month period still showed modest growth of 0.2%. But never-the-less, it remains one of weak growth.

Interestingly, the services sector provided a glimmer of hope, driven by robust retail activity, especially in food stores, as consumers opted to eat and drink at home more frequently. This sector’s resilience partially offset the declines in other areas.

The timing of this economic dip is particularly significant, as it precedes the Chancellor’s Spring Statement, where even more government spending cuts are expected to be outlined.

Chancellor Rachel Reeves acknowledged the challenges and reportedly commented that the global economic landscape has shifted, and the UK is feeling the repercussions. She reiterated the government’s commitment to accelerating efforts to stimulate growth and reform public services.

However, the unexpected contraction has sparked criticism from opposition parties, who have labeled the government’s policies as ineffective in fostering sustainable economic growth.

The Shadow Chancellor reportedly described the government as a ‘growth killer,’ citing high taxes and restrictive employment legislation as barriers to business confidence and therefore growth.

As the UK navigates these economic headwinds, the focus will remain on the Chancellor’s upcoming measures and their potential to steer the economy back on track.

The January figures serve as a stark reminder of the fragile state of the UK economy and the challenges that lie ahead.

February 13, 2025February 13, 2025

EEK! Only 0.1% growth for the UK

The U.K. economy grew by just 0.1% in the fourth quarter according to a preliminary estimate from the U.K.’s Office for National Statistics (ONS) released Thursday 13th February 2025.

Economists had expected the country’s GDP to contract by 0.1% over the period.

The services and construction sectors contributed to the better-than-expected performance in the economy, up 0.2% and 0.5% respectively, but production fell by 0.8%, according to the ONS.

Sluggish growth

The UK economy recorded zero growth in the third quarter, accompanied by lacklustre monthly GDP. There was a 0.1% contraction in October 2024 followed by a 0.1% expansion in November 2024.

On Thursday 13th February 2025, the ONS that growth had picked up in December, with an estimated 0.4% month-on-month expansion attributed to growth in and production.

Sluggish and a recent decline in inflation prompted the Bank of England to implement its interest rate cut of the year last week, reducing the benchmark rate to 4.5%.

The central bank indicated that additional rate cuts are anticipated as inflationary pressures diminish. However, it noted that higher energy costs and regulated price changes are projected to increase headline inflation to 3.7% in the third quarter of 2025.

Pressure

The expectation is that UK underlying inflationary pressures will continue to decline. The Bank of England expects the inflation rate to return to its 2% target by 2027.

The bank also halved the U.K.’s economic growth forecast from 1.5% to 0.75% this year.

Poor economic performance will add additional pressure on U.K. Chancellor Rachel Reeves, whose fiscal plans have been criticised for increasing the tax burden on businesses.

Critics say the plans, which increase the amount that employers pay out in National Insurance (NI) contributions as well as a hike to the national minimum wage, could harm investment, jobs and growth. This appears to be coming to fruition.

Chancellor Reeves defended her ‘dire’ Autumn Budget reportedly saying the £40 billion of tax rises were needed to fund public spending and that she is prioritising economic growth.

A poor start – 0.1% is an anaemic growth percentage!

January 28, 2025January 28, 2025

Recent surprise rise in UK borrowing – deals yet another disappointment for the chancellor

The latest UK borrowing figures, reveal a significant increase in public sector net borrowing. In December 2024, the UK government borrowed £17.8 billion, which is the highest figure for the month for four years.

This amount was reportedly £10.1 billion higher than the same month last year and exceeded the £14.1 billion forecast by most economists.

The reported rise in borrowing was driven by several factors, including increased spending on public services, benefits, debt interest, and capital transfers. The interest payable on central government debt alone was £8.3 billion, nearly £4 billion higher than the previous year.

Additionally, a reduction in National Insurance contributions following rate cuts earlier in 2024 partially offset the increase in tax receipts.

Chancellor Rachel Reeves faces a challenging fiscal environment, with borrowing costs rising due to lower economic growth, higher public sector wages, and increased benefits payments. The unexpected jump in December 2024’s borrowing highlights the difficulties in balancing the budget and maintaining economic stability. The Chancellor’s budget was one of growth, but employer NI hikes have unravelled her ‘growth’ plan.

Despite the rise in borrowing, government bond prices remained relatively stable, suggesting that traders were not overly concerned by the surge. However, the overall fiscal position remains precarious, with public sector net debt estimated at 97.2% of GDP, the highest level since the early 1960s.

The government has pledged to take a hard line on unnecessary spending and to ensure that every penny of taxpayer money is spent productively.

As the fiscal year progresses, the Chancellor will need to navigate these financial challenges carefully to maintain economic stability and growth.

However, it is anticipated next month, following the January tax income boost, figures will appear favourable for the government, albeit temporarily.

January 16, 2025January 16, 2025

UK eeks out tepid 0.1% growth

The UK economy grew for the first time in three months – but only just.

The tiny growth was driven in part by an increase in trade for pubs, restaurants, and the construction industry.

Official figures showed an expansion of 0.1% after the economy contracted in each of the two months.

The return to growth will be a welcome sign for the government after recent turbulence in financial markets sent borrowing costs to their highest level in several years and caused the value of the pound to fall.

However, the figure was lower than economists had expected, with declines in manufacturing and business rentals and leasing.

Chancellor Rachel Reeves reiterated her pledge to go ‘further and faster’ to improve economic growth in order to boost living standards, declaring it was the ” number one priority” for the government.

‘That means generating investment, driving reform, and a relentless commitment to rooting out waste in public spending,’ she reportedly said. She also repeated her accusation of blame at the Tories for the low growth. The chancellor surely cannot expect to continue escaping accountability with the blame game tactic for much longer.

However, with tax rises set to come into effect in April 2025, businesses have repeatedly warned that the extra costs faced through in National Insurance, as well as the minimum wage, could impact the economy to grow, with employers expecting to have less cash to give pay rises and create new jobs.

In the three months to November, the economy is estimated to have shown no growth, as calculated by the Office for National Statistics (ONS).

UK November 2024 0.1% growth

January 14, 2025January 14, 2025

Has ‘Rachel from accounts’ messed up the UK economy?

The pound has continued to fall after UK government borrowing costs rose and concerns grew about public finances

Sterling dropped as UK 10-year borrowing costs surged to their highest level since the 2008 financial crisis when bank borrowing virtually ground to a halt.

Economists have warned the rising costs could lead to further tax rises or cuts to spending plans as the government tries to meet its self-imposed borrowing target.

The UK government creates its own financial crisis as it messes up its ‘go for growth’ policy

The UK economy is currently grappling with a series of financial challenges that have led to a significant fall in the value of the pound, soaring treasury yields, and high borrowing costs.

These developments have been largely influenced by the recent budget announced by Chancellor Rachel Reeves, which has sparked concerns among investors and economists alike.

Downward trajectory

The pound has been on a downward trajectory, recently hitting its lowest level since November 2023. Traders are betting on further declines, with some predicting the pound could fall as low as $1.12

This decline is partly due to the rising cost of government borrowing, which has surged to levels not seen since the 2008 financial crisis. The yield on 10-year gilts has climbed to 4.8%, while the yield on 30-year gilts has reached 5.34%, the highest in 27 years.

Recent UK budget

The recent budget has played a crucial role in these developments. Announced in October 2024, the budget included significant tax hikes and increased spending, leading to a substantial rise in government borrowing.

The budget deficit is expected to reach 4.5% of GDP this fiscal year, pushing the overall government debt close to 100% of GDP. This increase in borrowing has led to a higher supply of government debt, which in turn has driven down the price of bonds and pushed up yields.

Higher yields

Higher yields mean that the government has to pay more to borrow money, which has significant implications for its fiscal policy. The rising cost of servicing government debt could force the government to either raise taxes further or cut spending to meet its fiscal rules.

This situation is reminiscent of the market turmoil following Liz Truss’s mini budget in 2022, which also led to a sharp rise in borrowing costs and a fall in the value of the pound.

The impact of these developments extends beyond the government. Higher borrowing costs are likely to affect households and businesses as well.

Economic growth at risk

Mortgage rates, which are influenced by government bond yields, are expected to remain high, putting additional pressure on homeowners. Businesses, on the other hand, may face higher costs of borrowing, which could lead to reduced investment and slower economic growth.

The UK is facing a challenging economic environment characterized by a falling pound, high treasury yields, and rising borrowing costs.

The recent budget has exacerbated these issues, leading to increased government borrowing and higher debt levels. As the government navigates these challenges, it will need to carefully balance its fiscal policies to avoid further economic instability and ensure sustainable growth and not more ‘unfunded’ debt.

October 4, 2024October 4, 2024

There is a UK budget coming and the new chancellor reportedly needs to raise £20 billion – to fill a ‘black hole’ – how can this be done without upsetting the electorate?

Tax Reforms

Increase in VAT: Adjusting the Value Added Tax (VAT) rate could generate substantial revenue.

Pension Tax Relief: Limiting pension tax relief to the basic rate of income tax could raise around £15 billion per year. Pension tax relief raid.

Windfall Tax: Increasing the windfall tax on the profits of oil and gas companies could also contribute significantly.

General Tax Increases: N.I., Income Tax, Capital Gains Tax, Inheritance Tax,

Public Sector Efficiency

Improving Productivity: Enhancing public sector productivity by just 5% could deliver up to £20 billion in benefits annually.

New Taxes or Levies

Green Taxes: Introducing or increasing taxes on carbon emissions and other environmental levies could help raise funds while promoting sustainability.

Digital Services Tax: Expanding the scope of the digital services tax to cover more online businesses could also be a potential revenue source.

Electric vehicle tax: new tax bands for electric cars

Spending Cuts

Reducing Public Expenditure: Identifying and cutting down on non-essential public spending could help balance the budget.

Economic Growth

Stimulating Growth: Policies aimed at boosting economic growth, such as investing in infrastructure and innovation, could increase tax revenues indirectly by expanding the tax base. But this will take time to fully materialise.

Each of these measures comes with its own set of challenges and implications, so the government would need to carefully consider the economic and social impacts before implementation.

Black hole?

The Chancellor has recently pointed to a ‘black hole’ in the public finances, referencing the recent uncovering of an ‘unbudgeted’ £22bn overspend in the current tax year following her tenure commencement at No. 11 Downing Street in July.

The reality of this newfound deficit is subject to debate. However, given that the Chancellor has ruled out the possibility of borrowing for day-to-day expenses, it seems she very likely she might be compelled to raise taxes to offset these expenditures.

N.I. and Pension raid?

In its last year, the Conservative government cut taxes by £20 billion by reducing the National Insurance rate. Reversing this cut would be a direct way to increase revenue, taking us back to the financial situation before last November.

Currently, many people receive a 40% tax relief on pension contributions but are taxed at 20% when they withdraw. This ‘inconsistency’ could easily become a target for the Chancellor.

Additionally, employers’ National Insurance contributions are not applied to pension contributions or withdrawals, and individuals can even take a tax-free lump sum from their pension after having received tax relief on their contributions.

Understanding the complexities is not necessary to see that a chancellor in search of extra tax revenue may consider pension contributions as a significant source of additional income.

The UK budget is due on: 30th October 2024 – let’s see just by how much UK taxes are increased – because they will be.

June 27, 2024June 27, 2024

“SS Sunak – rats deserting the Sinking Ship!”

SS Sunak – rats deserting a Sinking Ship!

UK Election: I don’t know if it’s just me but… where are all the Conservative Party cabinet BIG hitters?

Sunak has very little support, if any from his cabinet!

Where is Jeremy Hunt, the Chancellor of the Exchequer for example?

He’s not that visible on the election campaign trail. His absence could easily be construed as ‘distinctly unhelpful.’

Where is he?

January 25, 2024January 25, 2024

Tax cuts are coming, it must be election time again

Spinning the benefits of a tax cut scenario as Chancellor Jeremy Hunt hints at further tax cuts

The Chancellor, Jeremy Hunt, has given strong hints that he wants to cut taxes in the spring Budget.

Mr Hunt reportedly said that countries with lower taxes have more ‘dynamic, faster growing economies.‘ Didn’t Liz Truss say something like that too? But of course, she didn’t ‘cost it out’ in her mini budget apparently – but she also wanted lower taxes for growth none-the-less.

Autumn statement

In the Autumn Statement, the chancellor reduced national insurance for workers by 2% and announced tax relief for businesses. If inflation falls, followed by lower interest rates, Mr Hunt may consider he has scope for further tax cuts.

At the World Economic Forum, in Davos, Switzerland – he was also reported to have said that the: ‘direction of travel’ indicates that economies growing faster than the UK, in North America and Asia tend to have lower taxes. ‘I believe fundamentally that low-tax economies are more dynamic, more competitive and generate more money for public services like the NHS,’ he reportedly said.

It is widely expected that the chancellor will focus on income tax in the upcoming Budget due on 6th March 2024

Lower than expected government borrowing last month has increased the possibility of tax cuts in the Budget, analysts say.

UK Borrowing fell to £7.8bn in December 2023, the Office for National Statistics (ONS) indicated. Interest payments dropped sharply due to a faster than expected decline in inflation. Analysts said the latest figures could give the chancellor more wiggle room for tax cuts.

December’s borrowing figure was £8.4bn less than a year earlier, and the lowest figure for the month since 2019.

Interest payments on government debt fell to £4bn, down by £14.1bn from December 2022.

November 24, 2023November 24, 2023

UK autumn statement, in a nutshell

Some of the main takeaways from the chancellor’s autumn statement November 2023

National Insurance rate cut from 12% to 10% from 6 January, affecting 27 million people.

The 75% business rates discount for retail, hospitality and leisure firms in England extended for another year.

Class 2 National Insurance – paid by self-employed people earning more than £12,570 – abolished from April.

Class 4 National Insurance for self-employed – paid on profits between £12,570 and £50,270 – cut from 9% to 8% from April.

Full tax break permitting companies to deduct spending on new machinery and equipment from profits – now made permanent.

Funding of £4.5bn to attract investment to strategic manufacturing sectors, including aerospace, green energy, aerospace, life sciences and zero-emission vehicles.

Some £500m over the next two years to fund artificial intelligence (AI) innovation centres.

New premium planning services for England, with faster decision times for major business applications and fee refunds when these are not met.

Defence spending to remain at 2% of national income – a Nato commitment.

Overseas aid spending kept at 0.5% of national income, below the official 0.7% target.

Reaffirms previous commitments made last autumn to provide £14.1bn for the NHS and adult social care in England, as well as an extra £2bn for schools, in both 2023‑24 and 2024-25.

All alcohol duty frozen until 1 August next year.

Tobacco products duty increases by 2% above RPI inflation; hand-rolling tobacco rises 12% above RPI.

Fuel duty remains 52.95p per litre for petrol and diesel, after the chancellor announced a 5p per litre cut for 12 months in March 2023

State pension payments to increase by 8.5% from April, in line with average earnings.

Claimants in England and Wales deemed able to work who refuse to seek employment to lose access to their benefits and extras like free prescriptions.

**UK autumn statement – art illustration of office worker preparing data**

Further £1.3bn to help people who have been unemployed for over a year.

National Living Wage – to increase from £10.42 to £11.44 an hour from April.

Funding of £1.3bn over the next five years to help people with health conditions find jobs.

OBR Stats

Independent Office for Budget Responsibility (OBR) expects the economy to grow by 0.6% this year and 0.7% next year, rising to 1.4% in 2025; then 1.9% in 2026; 2% in 2027 and 1.7% in 2028.

Living standards not expected to return to pre-pandemic levels until 2027-28.

Underlying debt forecast to be 91.6% of GDP next year; 92.7% in 2024-25; 93.2% in 2026-27; before declining to 92.8% in 2028-29. (One to watch)

OBR forecasts that inflation – the rate prices are rising – will fall to 2.8% by the end of 2024, before reaching the Bank of England’s 2% target rate in 2025. (One to watch)

The OBR says higher inflation means real value of departmental budgets will be £19bn lower by 2027/28 compared with March 2023 forecasts.

Borrowing forecast to fall from 4.5% of GDP in 2023-24; to 3% in 2024-25; 2.7% in 2025-26; 2.3% in 2026-27; 1.6% in 2027-28 and 1.1% in 2028-29. (One to watch)

November 13, 2023November 13, 2023

UK economy flatlines

The U.K. economy flatlined in the third quarter, initial figures showed Friday 10th November 2023.

Gross domestic product (GDP) showed zero quarterly growth in the three months to the end of September 2023, following an increase of 0.2% in the previous quarter. In annual terms, the UK’s Q3 GDP was 0.6% higher than in the same period in 2022.

Services sector output dropped 0.1% on the quarter, but the decline was offset by a 0.1% increase in construction performance, while the production sector flatlined.

U.K. Chancellor of the Exchequer Jeremy Hunt said high inflation remains the ‘single greatest barrier to economic growth’ in the country, with the consumer price index remaining at 6.7% year-on-year in September 2023.

**UK economy flatlines as inflation sticks at 6.7% year-on-year as at September 2023.**

‘The best way to sustainably grow our economy right now is to stick to our plan and knock inflation on its head’, Hunt reportedly said.

It’s useful to know the government have a plan, even though they were very late to the inflation party! Guess they were sidetracked with all the other parties at No.10!

‘The Autumn Statement will focus on how we get the economy growing healthily again by unlocking investment, getting people back into work and reforming our public services so we can deliver the growth our country needs’.

Up until September 2023, the Bank of England (BoE) raised interest rates 14 consecutive times to try to influence the UK ‘product and service’ price climb.

Red flags

Interest rates are now at a 15-year high of 5.25%, and are expected to remain high for some time to come. Bank Governor Andrew Bailey reportedly said last week it was ‘much too early’ to be considering rate cuts.

Thank you Governor Baily – it so comforting and reassuring to know that the very people who missed the red inflation flags are still in charge of policy.

Transitory?

Remember, the BoE and others originally suggested inflation would be transitory – I suppose it is, if given years to move back down. What did you think was going to happen after all that borrowing and the country crawling back to work after the pandemic.

Nice job guys! Don’t forget to collect your paycheque on the way out!

October 18, 2023October 18, 2023

UK inflation sticks at 6.7%

The UK rate of inflation is stuck at 6.7% for September 2023, the same rate as August 2023, according to the Office for National Statistics (ONS).

It means prices are still rising at the same rate as the previous month.

Petrol and diesel costs kept inflation up, the Office for National Statistics (ONS) says, but food and non-alcoholic drink prices fell for the first time since September 2021.

Food inflation falls the most

Milk, cheese and eggs are among the products that went down the most; the price of household appliances and airfares fell to.

In response to the latest figures, Chancellor Jeremy Hunt said, ‘inflation rarely falls in a straight line’. He pledged to stick to the government’s promise to get the main rate of inflation down to 5% by the end of the year.

Targets! Targets! Targets!

Thank you for that enlightening comment, Mr Hunt. May I remind you that even if you hit the target the government set of 5% by the end of the year; inflation will still be a whopping 3% above the Bank of England (BoE) original target!

Come on – get your act together! You really should have prepared batter and seen this coming.

August 15, 2023January 6, 2024

Britain to unlock £50 billion in pension funding for tech startups

UK to unleash £50 billion in pension funding for tech startups

The U.K. government has unveiled a series of reforms that will allow pension funds to invest more in private and high-growth companies, especially in the tech sector. The move is expected to boost economic growth, support innovation and increase returns for future retirees.

The reforms include an agreement with the country’s largest defined contribution pension schemes to allocate 5% of assets in their default funds to unlisted equities by 2030. This could unlock up to £50 billion of investment in high-growth firms if all other defined contribution pension schemes follow suit, according to the government.

AI

The government will also create new investment vehicles that will give pensioners a stake in homegrown private companies, such as fintech and biotech startups, that have increasingly snubbed the London Stock Exchange and turned to foreign investors for cash. The aim is to make the U.K. a more attractive market for technology and a global leader in emerging fields like artificial intelligence.

The Treasury claimed that the reforms would not only help burgeoning industries, but could also result in higher returns for workers’ retirement funds. The government estimates that the average earner’s pension pot could rise up to 12% to as much as £16,000 with defined contribution pension schemes committing to more effective investments.

Unlock

The announcement comes amid criticism that the U.K. is losing its edge in technology and innovation, as evidenced by the recent decision of U.K. chip design giant Arm to list in New York rather than London. The chancellor, Jeremy Hunt, reportedly said that he wanted to make the U.K. ‘the world’s next Silicon Valley and a science superpower’ by unlocking investment from the U.K.’s £2.5 trillion pensions sector.

The reforms were welcomed by industry groups and experts, who said that they would help address the funding gap faced by many U.K. startups and scale-ups, and create more opportunities for long-term growth and value creation.

August 5, 2023January 8, 2024

Hunt – caught in a trap

According to the chancellor Jeremy Hunt, the UK economy is caught in a trap

The UK and other advanced economies are facing a low-growth trap that is hard to escape. This means that the potential growth of the economy, which depends on factors such as productivity, innovation, investment, and labour force, is very low and insufficient to meet the demand and expectations of the people.

Brexit

The UK economy has been hit by huge global shocks that have disrupted its normal functioning and recovery. These include the Covid-19 pandemic, which caused lockdowns, restrictions, and health crises; the energy crisis, which led to soaring gas prices and supply shortages; and the Brexit transition, which created uncertainty and trade barriers.

Inflation

The UK economy is also struggling with high inflation, which erodes the purchasing power of consumers and businesses. Inflation is driven by various factors, such as rising energy costs, global supply chain bottlenecks, labour shortages, and pent-up demand.

The Bank of England has raised interest rates to 5.25% as of August 2023 – the highest level since 2008, to curb inflation and maintain price stability. The Bank of England inflation target is 2%.

The plan?

The chancellor reportedly has vowed to stick to the plan that he believes will bring down inflation and boost growth in the long term.

He said that he will unveil a plan in the autumn statement that will show how the UK can break out of the low-growth trap and become one of the most entrepreneurial economies in the world. He also said that he will not ‘veer around like a shopping trolley‘ and change course in response to short-term pressures.