UK faces double-blow of tax hikes after poor data
Having gone from surprisingly strong growth in the first quarter, the UK economy is struggling once again.
Following a poor reading in April, the data from the Office for National Statistics today shows another fall in May of 0.1%, as businesses continue to get to grips with increased costs and consumers deal with the associated lack of confidence.
This fall was largely driven by production output, which fell by 0.9% in May. Construction shared a similar fate, with a 0.6% fall compared to the growth of 0.8% in April. Services regained slightly, with growth of 0.1% following a fall of 0.3% in April.
“The spotlight has been well and truly shone on the UK economy in the past week or so, with spending cuts nigh on impossible to enact and the Office for Budget Responsibility releasing its sobering fiscal risks report,” says Lindsay James, Investment Strategist at Quilter.
“Growth is becoming incredibly difficult to achieve for the government, and the plans put in place so far are unlikely to move the needle in the absence of improving business and consumer sentiment in an environment of ongoing cost pressures.”
All eyes on the Budget
In light of the poor data, budget speculation is ramping up, with the government expected to raise taxes again to replenish the public coffers.
“But the associated impact this will have on economic growth cannot be forgotten. This government made it a core mission of its time in office to produce the highest sustained growth in the G7,” said James.
Further tax rises are not going to make this job any easier or more achievable, risking the UK economy getting stuck in a familiar cycle until something breaks, she said.
“The choices are tough and stark, and until we see an end to the persistent tax rises, inflation returning to target and interest rates falling more meaningfully, improvements will be minimal.”
