Emergency Budget Announcement: Expert Reaction To New UK Chancellor's Attempt To Calm Financial Markets - Business certainty

18th October 2022

Steven McCabe, Associate Professor, Institute for Design, Economic Acceleration & Sustainability (IDEAS), Birmingham City University.

Businesses tend to be successful when there's confidence that the government has a coherent plan for the economy and is consistent in its implementation. The past three weeks have been anything but coherent or consistent. Hunt's five-minute emergency statement consigns Trussonomics to the bin and acts as a warning to future governments about ignoring the markets.

The reversal of Kwarteng's unfunded tax cuts, as well as the review of the energy support scheme - expected to cost more than £100 billion before it was cut from two years to six months - means public finances are on a surer footing. Creating a sense of stability and showing there is a grownup in charge will restore confidence among the international financial markets. This will be excellent news for businesses which, although they will be paying more corporation tax after last week's U-turn, can at least make investment decisions with reasonable certainty.

Nonetheless, problems remain. Inflation is still very high, which may require the base rate to remain elevated for months. The pound, which has risen today after Hunt's announcement, is still lower than when Kwarteng became chancellor in early September. Many businesses are in a precarious state and beset by a range of challenges including skill shortages and the prospect of higher energy after April.

Hospitality businesses - already being squeezed by rising energy costs - will not be helped by the scrapping of the alcohol freeze. Equally, Hunt's reversal of plans for tax-free shopping for tourists will be a kick in the teeth for those hoping to see the UK attract more overseas visitors. The retail sector is also bracing itself for tough times as people in the UK become collectively poorer and cut back on discretionary spending. More intervention may be essential to stem the rate of business closures this winter.

Note
This is part of an article from the conversation web site.
See it in full HERE