Global factors to blame for recession, Hunt insists

JEREMY HUNT emphasised at least seven times that Britain’s recession was caused by external factors during his hour-long speech yesterday.

The Chancellor said: “There may be a recession Made in Russia but there is a recovery Made in Britain.”

However, Britain faces the deepest downturn among the G7 countries next year, according to forecasts from the Office for Budget Responsibility.

The British economy is set to shrink by 1.4 per cent next year, according to the OBR – far deeper than the dip the International Monetary Fund predicts for Germany and Italy at -0.3 and -0.2 per cent.

The remaining G7 nations are expected to grow between 0.7 per cent and 1.6 per cent next year.

Anna Titareva, of the investment bank UBS, said: “What we see in the UK is a combination of two shocks that are faced by the eurozone and the US.”

These are labour shortages and soaring energy prices, she said. Unlike in the eurozone and the US, however, the shrinking workforce in the UK is placing additional pressure on the economy.

She said: “The UK labour force has shrunk compared to the pre-covid level, and that is visible when we’re looking at the participation rates. In the US and eurozone, participation rates are now back to where they were or even above that.”

Britain’s falling employment rate has come amid a surge in people being unable to work from long-term sickness. Many analysts believe this is linked to record NHS backlogs.

Samuel Tombs, from Pantheon Macroeconomics, also highlighted in a note to clients that scaling down the energy package will deepen the recession in the UK.

He said: “While the biggest tax rises and spending cuts have been pencilled in for after the next general election, which most likely will be held in late 2024, households face a cliff edge in energy price support, which will ensure that the recession deepens over the coming quarters.”

The Chancellor announced yesterday that rather than capping household bills for two years, as Liz Truss had planned, support would be limited to the most vulnerable from April next year.

However, James Smith, of ING, questioned whether the UK’S slump would be more severe than in other similar countries. He said: “I don’t think the difference between the UK and Europe will end up being that huge necessarily because it’s a common shock at the end of the day. Everybody is facing the same energy challenge.”