In Britain, the economic shock waves of the war in Ukraine are exacerbating a squeeze on household budgets and heightening fears of a cost of living crisis. The British government on Wednesday announced some measures to help people cope with the rising prices, which are at their highest level in three decades, including cutting gas prices.
Rishi Sunak, the chancellor of the Exchequer, said that the sanctions on President Vladimir V. Putin’s government and the efforts to isolate Russia were also weighing on the British economy. This was most acutely felt in the cost of living, he said.
“The actions we have taken to sanction Putin’s regime are not cost-free for us at home,” Mr. Sunak told lawmakers as he announced an update to the Treasury’s tax and budget plans on Wednesday. Hours earlier, the Office for National Statistics said inflation was at its highest level since 1992, with prices rising by 6.2 percent from a year earlier.
The interventions announced on Wednesday were limited. For a year, the government will cut taxes on petrol and diesel by 5 pence a liter. (The rate had been frozen for more than a decade.) Local authorities will get another 500 million pounds to support low-income households. And the biggest announcement of the day was the raise to the income threshold that workers must meet before they begin to pay National Insurance, a broad tax that funds state pensions and some benefits.
“The cut in fuel duty, though very welcome, is just a drop in the ocean compared to the larger tsunami of surging costs that is bearing down on firms and households,” Shevaun Haviland, director general of the British Chambers of Commerce, said in a statement.
The Office for Budget Responsibility, which provides independent economic and fiscal forecasts for the government, downgraded its outlook for the economy. Gross domestic product will increase 3.8 percent this year and 1.8 percent next year, it said on Wednesday. Six months ago, the agency forecast a growth of 6 percent this year and 2.1 percent in 2023. Inflation will average 7.4 percent this year and won’t fall back below the central’s target of 2 percent until 2024, it said.
The outlook for household incomes was even bleaker. With inflation factored in, household disposable incomes per person will drop by 2.2 percent in the next fiscal year beginning in April, the Office for Budget Responsibility said. That would be the largest fall in a single financial year since official records began in 1956.
Despite the deteriorating economic outlook, Mr. Sunak seemed reluctant to deviate too far from his previous spending and tax plans. It was the Treasury’s first fiscal announcement since Britain ended its pandemic restrictions, having already spent about £311 billion ($410 billion) in the first year of the pandemic on health services, businesses and workers. And Mr. Sunak has repeatedly stated the need to repair the public finances, temporarily raise some taxes and reduce government spending.
The government was pushing ahead with a plan to raise National Insurance for employers and workers from next month, to ease the backlog at the National Health Service and fund adult social care.
Source: NY Times