Tax rises and drop in investment predicted to limit UK growth

11 hours ago7 min read

The EY Item Club’s latest health check on the UK economy presents a sobering prognosis, downgrading growth forecasts for the coming year to less than 1%, a figure that aligns with the anticipated grim revision from the Office for Budget Responsibility. This constrained growth trajectory, set against the backdrop of imminent tax rises and a worrying contraction in business investment, severely limits Chancellor Rachel Reeves’s fiscal room for manoeuvre just weeks before her pivotal 26 November budget.The UK’s economic engine, it seems, is sputtering, caught in a pincer movement of fiscal tightening and capital flight. From a macro-economic perspective, this isn't merely a statistical blip; it’s a fundamental constraint on the nation's productive capacity.The anticipated drop in investment is particularly alarming, echoing the post-Brexit referendum uncertainty but now compounded by a new fiscal reality. When businesses withhold capital expenditure, the long-term consequences are a decay in infrastructure, a stagnation in innovation, and a gradual erosion of global competitiveness.This creates a vicious cycle: sluggish growth limits tax receipts, which in turn forces the Treasury to consider further revenue-raising measures or spending cuts, thereby further dampening economic activity and investor confidence. It’s a classic fiscal trap, reminiscent of the austerity years but with its own unique post-pandemic, high-inflation characteristics.The Chancellor’s challenge is Herculean. With limited financial firepower, she must navigate between the Scylla of stimulating a moribund economy and the Charybdis of maintaining fiscal discipline to placate bond markets.The data suggests she has precious little wiggle room. The EY forecast acts as a stark warning that the UK’s recovery path is far from secure, and without a decisive strategy to reinvigorate private investment and carefully calibrate the tax burden, the nation risks a prolonged period of economic stagnation that could see it fall further behind its international peers.

#featured

#UK economy

#growth forecast

#tax rises

#business investment

#EY Item Club

#budget

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