Treasury set for £11bn windfall that could stave off UK recession

A better-than-expected economic outlook and reduced energy prices raise prospect of tax cuts

THE Treasury will bank an £11billion windfall from a stronger-than-expected economy and plunging energy prices, economists have said, raising the prospect that the Chancellor could cut taxes sooner than expected.

Official data showed the economy expanded by 0.1pc in November on a monthly basis, as businesses sought advice from recruiters to solve staff shortages and bars and pubs enjoyed a boost from the Qatar World Cup.

The better-than-expected growth figures put Britain on course to avoid recession. Economists had expected the economy to shrink 0.2pc amid widespread strikes. Most believed the economy was already in recession thanks to soaring inflation, rising interest rates and a slowing global outlook.

Ruth Gregory at Capital Economics, who is a former analyst at the Office for Budget Responsibility, the Government’s tax and spending watchdog, said the outturn would also boost the public finances through higher tax revenues. She said the stronger outlook was likely to reduce borrowing by around £7billion alone in the coming financial year.

“The labour market has held up better than [the OBR] expected,” said Ms Gregory.

A sustained fall in wholesale energy costs will also reduce borrowing by around £9.6billion, according to Capital Economics.

Taking into account the extension of the £5.5 billion business energy price support in 2023-24, Ms Gregory said this suggested the Treasury had “about £11 billion to play with”.

Sanjay Raja, an economist at Deutsche Bank, said the fact that UK borrowing costs had continued to fall in the wake of November’s Autumn Statement would also boost Treasury coffers.

“Lower borrowing costs through the forecast horizon will have a meaningful impact for the Chancellor to the tune of £10 to £15billion,” he said.

Last night, Tory MPS said the figures mean Jeremy Hunt has more space to cut taxes in March’s Budget.

Former levelling-up secretary Simon Clarke said: “This latest data is cautiously encouraging.

“It certainly strengthens the case that the Chancellor can be a bit more positive when it comes to our ability to lower the burden of personal and business taxes sooner than expected, which would in turn improve our economic performance.”

Mr Clarke also urged local authorities

‘It strengthens the case that the Chancellor can be a bit more positive when it comes to lowering taxes’

to hold off from increasing council tax bills in April. He said: “Clearly Conservative authorities should be looking at all available options – including radical ones like sharing back office services – before increasing the burden on their constituents.”

Elizabeth Martins, senior economist at HSBC, said a recession was now “avoidable”. While she said widespread strikes last month would dampen growth by leading to the cancellations of many Christmas parties, Ms Martins added: “On the other hand, with positive growth in both October and November, it is not guaranteed.

“The World Cup may have continued to play into growth in consumer-facing services, and some retail company results at the moment are pointing to better-than-expected Christmas sales.”