The Chancellor didn’t just do a further U-turn on the Truss/Kwarteng policies in his statement today, he essentially wiped them out in an attempt to reassure the financial markets that the government does have some fiscal discipline after all. It seems to be working, with most of the rise in the pound and the large fall in gilt yields earlier today having being sustained. But while the Chancellor has reduced fiscal uncertainty, by guaranteeing that utility prices will be frozen only until April 2023 rather than October 2024, he has introduced more economic uncertainty. It is possible this means that inflation will be higher than otherwise for longer, that households’ real incomes will fall by more and that the recession will be deeper. There are a lot of moving parts, but our existing forecasts that interest rates will rise from 2.25% now to 5.00% and that GDP will fall by 2% during a recession don’t seem that wide of the mark.
Become a client to read more
This is premium content that requires an active Capital Economics subscription to view.
Already have an account?
You may already have access to this premium content as part of a paid subscription.
Sign in to read the content in full or get details of how you can access it
Register for free
Sign up for a free account to gain:
- Unlock additional content
- Register for Capital Economics events
- Receive email updates and economist-curated newsletters
- Request a free trial of our services