Jeremy Hunt's announcement of the Spring Budget on 6 March will once again be a balancing act for the British Chancellor of the Exchequer. He has the difficult task of supporting an economy whose activity is stalling and investment needs are increasing, while trying to reverse the trajectory of the public deficit, which widened in 2023.
The Autumn Budget had made it possible to introduce significant tax cuts, with the reduction in the national insurance contributions for employees being the most important measure. However, the room for maneuver is shrinking. According to the ONS, the public deficit reached 4.8% of GDP in 2023, an increase of almost one percentage point compared to last year. The increase in tax revenues and the phasing out of energy support measures for households and businesses have been more than offset by an increase in social spending, as well as wage increases in the civil service.
The health crisis marked a real break in the evolution of public accounts, which the energy and inflation crisis continued to fuel. The UK government deficit ratio has more than doubled since 2019.
UK public sector net debt exceeded £3 trillion for the first time in October 2023, almost 110% of national GDP The exclusion of the debt attached to the State’s participation in the capital of Natwest makes it possible to obtain a measure quite comparable to those used by the European neighbours of the United Kingdom: in this case, the ratio amounts to 98% of GDP at the end of last year, up 2 points from 2022.
These results should be read in the light of an unfavourable economic situation for the UK economy: activity stagnated in 2023, up just 0.1% based on preliminary figures from the ONS. This result masks the fact that the evolution of real GDP has gradually deteriorated over the course of the year, with a contraction over the last two quarters, of 0.1% in Q3 and 0.3% in Q4.
The significant effects of tighter monetary policy on the financial situation of households and businesses, high inflation, difficulties in the industrial sector and Brexit-related headwinds constitute a range of cyclical and structural obstacles for the UK economy, some of which will persist into 2024.
The Spring Statement is expected to be the last major budget event before the next general election, the date of which has not yet been set but which should, barring any surprises, be held in the second half of 2024. The situation on the fiscal front indicates that the government will at some point, have to pursue fiscal consolidation. The exact timing remains uncertain. With the Conservative Party trailing the Labour party by a large margin in the polls, the current government's temptation to press the fiscal pedal is likely to be high, which would increase the burden of improving the public accounts all the more to the newly elected government.
