British finance minister Jeremy Hunt announced a string of tax increases and tighter public spending in a budget plan on Thursday that he said was needed after the blow dealt to the country's fiscal reputation by former prime minister Liz Truss.
Outlining a 55 billion-pound plan - almost half from tax rises - to fix the public finances, Hunt said the economy was already in recession and set to shrink next year as it struggles with inflation forecast to average 9.1% this year and 7.4% in 2023.
Britain's budget watchdog said rising prices would further erode people's wages and reduce living standards by 7% by April 2024 - the year a national election is expected - wiping out growth over the eight years to 2022. Millions of Britons are already struggling with a cost of living crisis.
The tax burden would hit 37.1% of GDP, its highest sustained level since World War Two, at the end of its five-year forecast period, the OBR said, up from 33.1% in the 2019-20 tax year.
But Hunt said he could not avoid painful fiscal medicine - although much of it will not kick in immediately - if Britain is to build on the recent restoration of calm in financial markets.
"Credibility cannot be taken for granted and yesterday’s inflation figures show we must continue a relentless fight to bring it down, including an important commitment to rebuild the public finances," he told parliament.
British inflation was 11.1% in October, a 41-year high. Sterling was down almost 1% against the dollar and 0.2% against the euro after Hunt spoke, as investors assessed the scale of belt-tightening, which looked more severe than anything planned by other big rich economies.
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