According to a leading economist, Rachel Reeves’s tax-hiking Budget has had “a chilling impact on confidence, hiring, and investment. ”
Julian Jessop, an economics fellow at the Institute of Economic Affairs, warned that recent economic data suggests the UK is on the brink of stagflation. “Private sector activity has stalled, inflation is rising again, and job insecurity is increasing. Even if this phase is mild compared to previous downturns, the economy is significantly underperforming the projections from last October’s Budget,” he said.
Jessop acknowledged global economic headwinds, noting that major EU economies are also grappling with slow growth and rising inflation. However, he argued that the UK’s sharp downturn since last summer is “undoubtedly” linked to the fallout from the Budget.
“The rise in taxes and other business costs has severely impacted confidence, hiring, and investment,” he said. “Companies are also concerned about additional burdens from tighter employment regulations and the rapid push to decarbonise the energy grid.”
Higher inflation, he warned, will erode real incomes and dampen consumer spending, while also reducing the likelihood of further interest rate cuts. “The Bank of England is now unlikely to lower rates again until May,” he noted.
Meanwhile, the economy faces another fiscal statement and a tight spending review. While further tax increases are not yet inevitable, Jessop cautioned that they are becoming increasingly likely as tax revenues fall short and borrowing costs remain elevated.
