Recession-hit UK confronts its fiscal abyss

An ever-worsening economic squeeze poses major challenge

Britain’s plan to repair its damaged public finances and market credibility will finally emerge this week in the wake of data showing an intensifying cost-of-living shock in a recession-stricken economy.

Spending cuts and tax increases may feature heavily in the programme that Chancellor of the Exchequer Jeremy Hunt will unveil on Thursday. He is expected to announce measures totalling at least 50 billion pounds ($59 billion) to bridge a budget chasm.

Compounding the challenge is an ever-worsening economic squeeze. A lengthy recession is now likely under way, as signalled by gross domestic product data released last Friday, and inflation numbers for October due on Wednesday will probably show the highest outcome yet seen in the current energy crisis. The median forecast is for a jump in consumerprice growth to 10.7 per cent.

Crucial decisions

The choices taken by Hunt and Prime Minister Rishi Sunak will determine how far Britain can weather that storm, and also move on from its remarkable financial-market debacle of recent weeks. A package of unfunded tax cuts unveiled by former Chancellor Kwasi Kwarteng and then-premier Liz Truss in September prompted a loss of confidence in the UK economic framework that has become a parable for other countries to avoid.

In the meantime, the Bank of England is likely to keep raising interest rates to bring inflation under control.