NI hike ‘to tip Britain into recession’
RISHI SUNAK’S tax raid risks tipping the economy into recession as families and businesses are already struggling with surging prices, economists have warned.
The economy shrank by 0.1pc in March, data from the Office for National Statistics (ONS) revealed, even before the Chancellor’s National Insurance increase which came into force last month.
It came at the same time as energy bills jumped by 54pc, which the Bank of England estimates has already forced inflation up to 9pc – pushing policymakers to raise interest rates to a 13-year high of 1pc.
Suren Thiru, head of economics at the British Chamber of Commerce, called on Mr Sunak to scrap the extra tax for at least the rest of this financial year as he warned there was “a real chance the UK could be in recession by the third quarter of this year”.
He said: “That is partly due to cost pressures – high inflation, energy bills – and also National Insurance squeezing consumer spending and business investment.”
That will be exacerbated by the fall in Covid spending, which has boosted the economy through the vaccine rollout and the Government’s Test and Trace
programme, as well as the extra bank holiday which takes away a working day in June.
Samuel Tombs at Pantheon Macroeconomics said he expects households’ real expenditure to “buckle” in the second quarter under the weight of the “huge jump in energy prices and the increase in employees’ National Insurance Contributions”, causing GDP to fall.
March’s decline leaves the economy 1.2pc above its pre-covid level of February 2020, according to the ONS.
Retail and wholesale activity fell by 2.3pc, with the sale and maintenance of vehicles crashing by more than 15pc amid global supply chain chaos. However, personal services picked up while healthcare grew by 2.1pc on the month, with the return of more GP appointments and A&E care pushing up output. In-person appointments add more to the economy than the phone consultations.
Over the first quarter of the year as a whole, GDP grew by 0.8pc as the economy recovered from omicron, before the war in Ukraine sent already inflation spiralling further. Surging oil and fuel prices helped push the trade deficit to a record £25.2bn in the first quarter.
Mr Sunak said: “Our recovery is being disrupted by Putin’s barbaric invasion of Ukraine and other global challenges but we are continuing to help people where we can. Growth is the best way to help families in the longer term so as well as easing immediate pressures on households and businesses, we are investing in capital, people and ideas to boost living standards in the future.”