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BBC News business reporter Michael Race provided an update on Chancellor Rachel Reeves’ response to the UK economy’s recent contraction in April. Reeves did not rule out future tax increases following a 0.3% decrease in the economy due to rising business taxes, increased household bills, and a drop in exports to the US. Despite outlining spending plans aimed at stimulating growth with increased funding for healthcare and defense, the prospect of further tax rises looms as economists caution that maintaining UK growth is crucial to balancing government spending commitments.
Reeves acknowledged the disappointing economic figures, highlighting the uncertainty in global markets and the need for flexibility in budget planning. The Institute for Fiscal Studies (IFS) director, Paul Johnson, emphasized the likelihood of additional tax rises if the economy veers off track. Resolution Foundation CEO Ruth Curtice echoed this sentiment, suggesting that tax adjustments may be necessary in the upcoming autumn Budget to account for a weakened economic outlook. Reeves focused on long-term investments during the Spending Review, aiming to enhance economic growth and living standards, despite concerns over squeezed day-to-day spending budgets.
The government’s borrowing costs have risen as investors exhibit skepticism towards spending plans, signaling potential challenges ahead. Lindsay James, an investment strategist at Quilter, highlighted the growing concerns over future tax increases as the economy falters, potentially hindering growth further. While steady growth typically indicates increased consumer spending, job creation, higher tax revenues, and improved wages, the UK has struggled with sluggish growth for an extended period. The Office for National Statistics attributed the April contraction to a poor performance in the services sector, compounded by weak showings in legal and property industries after a rush of purchases to avoid stamp duty changes in March.
The introduction of 25% tariffs on UK vehicle exports to the US in April impacted car manufacturing, a key sector for the UK, resulting in a substantial decline in exports, particularly to America. The subsequent trade agreements with the US, the European Union, and India have somewhat alleviated tariff concerns, but challenges persist with the existing 10% import tax on most UK goods entering the US. Opposition parties have criticized Reeves’ economic decisions, attributing the lackluster growth to her policies. Shadow chancellor Mel Stride and Liberal Democrat Treasury spokesperson Daisy Cooper raised concerns over potential tax hikes, particularly following recent increases in employers’ National Insurance contributions, escalating minimum wages, and rising business rates that have strained businesses like Vaulkhard Group’s hospitality venues in Newcastle upon Tyne
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