This week we saw the chancellor playing for time. Tax rises and spending cuts were well briefed to the media and markets have so far taken Jeremy Hunt’s announcements in their stride. The chancellor’s reforms also managed to keep the Conservative backbenches mostly onside as Hunt appears to have pulled off the trick of sounding serious without actually doing very much, as the biggest spending cuts have been deferred.
Political commentators have been keen to point out that delaying spending cuts sets a trap for the next government. However, Hunt is likely to have learned Kwasi Kwarteng’s painful lesson: borrowing a lot of money when interest rates are high is expensive and makes you unpopular. The Office for Budget Responsibility predicts inflation will turn negative in 2024 and the UK is entering a protracted recession. Hunt may be betting that the Bank of England will have to cut rates and restart QE to revive the economy. This would revive the option of tapping the gilt market to pay for government spending, just in time for the next election. And if it doesn’t work, well that will be someone else’s problem to deal with.
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