UK on Edge: Autumn Budget Puts Bank of England to the Test – Can the Economy Weather the Storm

British Chancellor of the Exchequer Rachel Reeves recently announced the first autumn budget report since the Labor Party came to power in July this year. The budget report proposes that the UK will increase fiscal expenditure through substantial tax increases and additional issuance of national debt. Some analysts believe that the British government’s move will increase the burden on businesses and consumers. At the same time, the Bank of England is also facing the dilemma of whether to continue cutting interest rates.

Increased burden on enterprises

Beijing’s Economic Information Daily reported that British entrepreneurs and business circles have a relatively negative view of this budget because the new tax revenue mainly falls on enterprises and investors.

According to Reuters, after the autumn budget report was released, a snap poll conducted by the British think tank the Institute of Directors found that two-thirds of business leaders had a negative attitude towards the autumn budget, which they believed would not achieve economic growth. goal. Roger Barker, director of policy research at the British Institute of Directors, pointed out that the new fiscal budget will improve public services and promote economic growth by imposing new tax burdens on enterprises. If stable, sustained economic growth does not materialize as expected, the viability of the government’s future spending plans will be compromised.

Ray Newton-Smith, chief executive of the Confederation of British Industry (CBI), said it was a tough budget for British businesses. The increase in the employer’s national insurance tax rate will increase the burden on enterprises, dampen their enthusiasm for investment, and make enterprises face higher costs in recruiting employees and raising wages. To achieve sustainable economic growth, the Government must work more closely with business to drive the investment needed to unlock economic growth across the UK. Accelerating the government’s growth goals requires private sector investment.

British Business and Trade Secretary Jonathan Reynolds also said that tax increases announced in the government budget may hinder companies from hiring workers and raising wages. He said increasing employers’ National Insurance contributions and increasing the minimum wage would affect businesses, including the number of staff they employ and the wages they can pay.

The retail industry is one of the main components of the British service industry and one of the driving forces behind the stable and sustained growth of the British economy. Helen Dickinson, chief executive of the British Retail Consortium, pointed out that the UK retail industry employs 3 million people and 2.7 million people are employed in the supply chain. The Autumn Budget will deal a heavy blow to the retail industry, which has lower profit margins, and the likelihood of growth and investment in the retail sector in the short term is very low.

KPMG chief economist Serfin pointed out that according to the budget arrangement, current government spending will grow at a real rate of 1.3% from the 2025-2026 fiscal year. This comes at the expense of a significant increase in taxation, which is likely to be detrimental to the growth of the UK economy, as the bulk of the tax increase will be borne by UK businesses.

According to the Financial Times, the internationally renowned rating agency Moody’s warned that the UK Chancellor’s plan to increase borrowing after revising the UK’s fiscal rules poses “additional challenges” to public finances. Moody’s said Reeves had left himself only a limited buffer to absorb unexpected shocks, but the budget would do little to improve Britain’s economic growth in the coming years.

James Dyson, the famous British inventor and billionaire and founder of Dyson Ltd., said that the plan to increase taxes on British companies in the new budget will stifle existing home businesses and kill any motivation to set up innovative enterprises. A large number of small businesses will Businesses will suffer, and no business can survive a 20% tax grab. Mr Dyson said Labor was stifling local business by trying to attract foreign investment.

Still, Reynolds defended the budget. Reynolds said: “If you look at the overall tax situation in the UK, if you assess the changes we have made, the UK is still a globally competitive market. Of course, if there are any pressures on businesses, it will ultimately affect businesses. the way they operate, and their capabilities in recruiting and compensation.”

People’s lives affected

According to the Financial Times, domestic comments in the UK believe that it can be seen in the autumn budget that the government is working hard to find a balance between debt management and economic growth. But what follows is an increase in taxes and fees that individuals need to bear, and an increase in the cost of living, which may put some pressure on low- and middle-income families. However, corporate tax increases may affect economic vitality, and the UK will still face challenges in improving economic resilience in the future.

The UK Government’s Office for Budget Responsibility (OBR) said that most of the tax increases in the budget report will ultimately fall on ordinary workers and consumers. The OBR predicts that after employers’ national insurance contributions are increased starting in 2025, 60% of the cost increases will be passed on through lower wages and higher prices.

British Education Minister Bridget Philipson announced in the British Parliament on November 4 that university tuition fees in England will increase by 3.1% from next autumn. This is the first increase since 2016. Phillipson said this policy would bring the maximum tuition fee to 9,535 pounds (approximately $12,335) per year.

Phillipson said the increase was due to inflation and was designed to combat financial pressures on the higher education sector. In addition to shrinking tuition revenue from domestic students, university revenue has also been affected by a sharp decline in international student numbers.

The Bank of England is in a dilemma

At present, falling inflation has increased the possibility of consecutive interest rate cuts by the Bank of England in November and December. However, some analysts said that the Bank of England may slow down the pace of interest rate cuts after the latest budget report is released.

Data show that UK service sector inflation, core inflation and overall inflation all declined significantly in September, especially services sector inflation, which was significantly lower than the Bank of England’s forecast in its August monetary policy report. The latest wage growth data in the UK also suggests that inflationary pressures have eased. The labor market report in August showed that regular wage growth in the private sector further slowed to 2.6% month-on-month. In addition, the average salary growth rate in the UK in the second half of the year dropped significantly compared with the first half of the year, to about 4%, and is expected to slow further to about 3% in 2025.

According to the Financial Times, Goldman Sachs International Strategist Stern and his team issued a report stating that the Bank of England will face two opposing trend backgrounds at future Monetary Policy Committee meetings. On the one hand, the latest inflation data shows is trending downward, supporting a more “radical” monetary easing policy; on the other hand, the UK’s autumn budget exceeded expectations, and the UK Government’s Office for Budget Responsibility (OBR) assessed that these policy changes will increase UK demand by 0.6% in 2025, while Increased demand will in turn push inflation upward.

Goldman Sachs said that the UK’s autumn budget may increase the central bank’s inflation forecast for the UK by 0.3 percentage points in the fourth quarter of 2025 and 0.2 percentage points in the fourth quarter of 2026.

(Editor: Shen Xin)