British Chancellor of Exchequer Jeremy Hunt said the country would avoid a "technical recession" in 2023, citing a forecast by the Office for Budget Responsibility or OBR.
The OBR projected a 0.2 percent decline in the U.K.'s gross domestic product this year, a significantly smaller decline than the previous prediction of a 1.4 percent drop.
The U.K. Treasury coffers rose due to higher tax receipts and lower spending on some government schemes, such as the Energy Price Guarantee, following the sharp decline in energy prices.
The OBR projection is more optimistic than the International Monetary Fund (IMF) forecast that the U.K. economy would shrink by 0.6 percent this year. Britain remains the only G7 country whose industrial output has not recovered to pre-pandemic levels.
The British economy is expected to grow by 1.8 percent next year, per OBR's report. However, growth forecasts for 2025 and 2026 are lower than previous predictions, signaling that the U.K. government must work on a tight budget in the coming years.
"Today the Office for Budget Responsibility forecast that because of changing international factors and the measures I take, the U.K. will not now enter a technical recession this year," Hunt said.
"They forecast we will meet the Prime Minister's priorities to halve inflation, reduce debt and get the economy growing."
The fiscal headroom for the U.K. is expected to fall to £6 billion ($7.2 billion) by the end of 2026 from £9 billion ($10.8 billion). Meanwhile, U.K. borrowing is projected to peak at around £150 billion ($181 billion) this year but will eventually meet the government's fiscal targets of below £4.5 billion ($5.4 billion) by the end of 2026.
Regarding inflation, the OBR predicted price growth to return to the two percent target in early 2028. Meanwhile, the Bank of England's Monetary Policy Committee (MPC) predicted in its February report that inflation would "fall quickly" in 2023.
The MPC explained that the slower growth in energy and imported goods prices would help bring down the annual inflation rate. The U.K. government has introduced a measure that caps energy bills for households and businesses, while production issues of imported goods have eased as well.
The committee added that high interest rates, courtesy of the central bank's tight monetary policy, would weaken demands for goods and services, allowing inflation to slow even further.
Hunt's public address happened on the same day as a wave of strikes by junior doctors, civil servants, teachers and public transportation workers in various parts of the country.
The Chancellor assured that the government was working to settle the disputes but would only implement a "way that does not fuel inflation."
If you missed my budget and my plan for how we’re going to grow the economy, here are 11 things from the budget in 60 seconds, start the clock 👀 pic.twitter.com/Ra06Opye24— Jeremy Hunt (@Jeremy_Hunt) March 15, 2023
Hunt unveils 'Budget for Growth'
The Chancellor revealed the "Budget for Growth," an initiative to get people back into the workforce, increase business investment and support high-growth industries. Hunt said the new initiative could also resolve the cost-of-living crisis the people had endured in the past year.
A big area of spending in the budget plan is a £4 billion ($4.8 billion) package of childcare support. The plan includes 30 hours of free childcare for all children under five years old to encourage parents to return to work.
The U.K. also tries to encourage people over 50s, people with disabilities and those who claim unemployment benefits to work by increasing the capacity of skill boot camps by 8,000 spots next year. These boot camps will teach these people new skills.
Business tax will rise to 25 percent in April, despite the industry's warnings that it will harm Britain's competitiveness in the global market. The government also decided to scrap the 130 percent tax relief on purchases of equipment for corporations.
However, the government replaced this program with other tax reliefs for companies investing in their facilities — estimated to cost taxpayers £8 billion ($9.6 billion).
Hunt's plan also involves the establishment of investment zones in various locations across the country, support for the green economy transition and increased defense spending.