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A general view of the Houses of Parliament on March 28, 2019 in London, England.
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The Labor Government of Great Britain will undergo intense scrutiny on Wednesday, since the Minister of Finance, Rachel Reeves, prepares to update legislators about their expenses and tax plans and the economic perspective of the nation in the midst of disturbing times for the United Kingdom
Reeves is expected to announce billions of pounds in expenses of expenses as a way to close a budget deficit caused by an increase in loan costs since its first fiscal plan, published last fall.
The Minister of Finance has already promised to comply with its “fiscal rules” self-imposed established in the “autumn budget” last October: to ensure that daily expense is fulfilled and that public debt falls as a proportion of economic production by 2029-30.
The United Kingdom Finance Minister Spring statementThat it will be presented in Parliament at 12.30 pm of London’s hour, will be delivered together with the latest economic forecasts of the Office of Budget Responsibility (OBR), the Independent Public Finance Surveillance Agency of the country.
The OBR is As reported, expected To degrade the United Kingdom’s growth forecasts by 2025 and reduce its previous estimate of 2%, with a lower production that pressed the government’s indebtedness requirements and forced Reeves to reduce public spending by around 10 billion ($ 12.96 billion).
‘A changing world’
Since its initial budget was presented last October, Reeves has had increasing pressure to reduce public spending, increase taxes or to fold the fiscal rules in the midst of an increase in the indebtedness costs of the United Kingdom that analysts, according to analysts, has eliminated the “space for the fiscal head” that Reeves had within its initial budget.
The United Kingdom also faces the spectrum of a temporary increase in the inflation rate, According to the Bank of Englandalong with Continuous economic continuation In recent months.
Reeves is expected to refer to change in the economic context since its last budget declaration, with uncertainty of the commercial tariffs of the president of the United States, Donald Trump, which are considered inflationary, which also raises a wind against for the economy.
The Treasury issued a press release on Tuesday that affirms that Reeves would commit to “national security and renewal” in his spring statement that, he said, would be designed “to initiate economic growth, protect working people and keep our country safe.”
Reeves will also warn that “we have to move quickly in a changing world” and is ready to present a significant step to spend 2.5% of GDP in defense with an impulse of financing of £ 2.2 billion ($ 2.6 billion) next year, the treasure said.
The Prime Minister of Britain, Keir Starmer, meets with the Chancellor of Great Britain of the Rachel Reeves, days before the announcement on the first budget of the new Labor Government, in Downing Street on October 28, 2024 in London, England. Starmer and Reeves meet before the budget on Wednesday.
WPA pool | Getty Images News | Getty images
The Reeves statement is expected to address the “erosion of the fiscal head through a stricter expenses control,” said Emily Nicol and Edward Malling at Daiwa Capital Markets.
“At the time of the October budget announcement, the OBR projected a current budget surplus in fiscal year 29/30 of approximately 10 billion, with that amount that represents the so -called ‘head space’ of the government to meet its binding objective of a current balanced budget on that date. Today’s figures suggest that this has been more than eliminated,” they noted.
“With economic growth recently below the expectation of OBR, and the OBR will probably reduce its 2.0%and/and/and by 2025 GDP prognosis, the overweight of public loans and the subsistence of tax revenues in relation to the OBR prognosis could be considered partly due to the cyclical weakness that could, in the course, automatically correct.”
Economists warned, however, that “OBR will consider that the increase of approximately 20-40 basic points in golden yields in much of the curve since mid-October, it is considerable that it is structural and together with other landslides, in the absence of compensation of new policies, the space for the head of the government has probably erossed.”
Expenses ahead
The erosion of the treasure fiscal head space has led economists and analysts to be widely banking in Reeves that announces billions of pounds in cost cuts on Wednesday.
The government has already marked plans For welfare expenses of £ 5 billionas well as intentions to reduce administrative costs of civil service, which implements government policies, 15% by 2030.
“The spring declaration will see an increase in the loans required in the next two years due predominantly to higher interest payments. An updated OBR forecast will require the chancellor to make cuts of expenses loaded with about £ 10 billion to retain its previous fiscal hair content,” Barclays Strategy Moyeen Islam and the main economist of the UK Jack in the United Kingdom The analysis of the last week.
“It is very likely that these savings will focus on welfare spending and public sector staff, and were delayed until the second half of Parliament, beyond 2027,” they added.
Rachel Reeves, Minister of Finance of the United Kingdom, speaking in the CNBC square box outside the World Economic Forum in Davos, Switzerland, on January 22, 2025.
Gerry Miller | CNBC
Geopolitical consulting analysts had agreed that although the autumn budget last October saw £ 40 billion in specific fiscal increases to finance public services, it is likely that the next declaration of reeves “implies well -being expenses cuts,” pointing out that “any additional tax increase (even limited) must be observed.”
“A certain relief could also arrive for employers, after the controversial increase in the contribution of the National Insurance in October. In general, the declaration will serve to underline the limited fiscal space as the search for growth and productivity continues, amid pressures to improve public services and a higher defense expense,” added Teneo analysts.
A treasure spokesman told CNBC on Tuesday that the treasure “would not comment on speculation about OBR forecasts.”
“The chancellor has also been clear that she would not repeat the tastes of the October budget and now focuses on growing the economy and rooting waste in public spending through the review of expenses,” added the spokesman.
Reeves has repeatedly commented that it would not abandon its fiscal rules or increase taxes for now, although economists hope they can get more levies later this year.
There was a generalized dismay in the British business community last fall when the fiscal burden on companies and employers raised with the objective, he said, to plug a hole in public finances and allow investment in public services.
British industry leaders warned that Treasury tax plans However, I could weigh on investment, jobs and growth.
Reeves defended tax increases as a “unique” measure and necessary to boost investment in public services. She has repeatedly declared that increasing the growth of the United Kingdom is her number one priority and has promised that she would not loosen the fiscal rules or objectives she has imposed on her department.
