British budget: UK inflation to hit 4% next year on energy hikes

Without identifying effects of Brexit, British chancellor Rishi Sunak said energy prices would take months to ease and would not be solved overnight

UK chancellor of the exchequer Rishi Sunak holds his ministerial 'red box' as he stands with his ministerial team before delivering his budget.

British inflation is set to rise next year amid the pressures facing the country from global shortages and Brexit, although growth will be better than once expected to help it pay its substantial Covid and infrastructure bills, according to the autumn budget presented by its chancellor Rishi Sunak.                   

In key economic forecasts, Mr Sunak said the headline inflation was expected to average 4% next near – which suggests prices in Britain over the winter will rise sharply, while growth, in GDP terms, is now seen at 6.5%, up from the 4% expansion expected in March. 

He expects growth of 6% next year.       

The British figures compare with the Department of Finance here, which predicts Irish inflation will average 2.2% in 2022, and that the Irish economy will surge, in GDP terms, by 15.6% this year, or by more than 5% under an adjusted measure.         

Without identifying effects of Brexit, Mr Sunak said pressures caused by supply chains and energy prices would take months to ease and would not be solved overnight. 

Freeze on petrol duty

To help ease inflation pressure, he announced a freeze on planned duty hikes on petrol pump prices.                 

Despite the additional growth dividend, his budget contained little new for British businesses or any major new spending pledges. That suggests the Boris Johnson-led government is already thinking of a war chest for a future budget ahead of an election, experts said.

"The OBR [Office for Budget Responsibility] handed Rishi Sunak a significant upgrade to its forecasts for the public finances but, while the chancellor spent some of the windfall, a substantial amount was saved – allowing the chancellor to start building a war chest that could be deployed ahead of the next election," said Neil Shearing, group chief economist at Capital Economics. 

The windfall nonetheless allowed him "to sprinkle some giveaways", Mr Shearing said. 

Spending increases during the life of the British parliament will go to health, social care, and education, Mr Sunak said, pledging to spend a total of £24bn (€28.4bn) on housing over multiple years. 

Few additional measures for businesses

For UK businesses, there were few additional measures. Mr Sunak said business rates will be kept but a 50% discount will apply in the retail and hospitality sectors up to a maximum of £110,000 (€130,245). 

UK business group, the Forum of Private Business, said the budget had "once again failed to address the issue of business rates properly" and had ignored "other small businesses".  

Mr Sunak announced cuts in the air passenger duty for passengers between airports in England, Scotland, Wales and the North and said he planned from 2023 for "a new ultra-long-haul band" for airline tickets flights of more than 5,500 miles (8,850km).  

Britain's OBR sees the economy returning to its pre-Covid level around the end of the year and predicts GDP will grow 6% in 2022. Expansion slows to 2.1%, 1.3% and 1.6% over the next three years.

On debt, the OBR predicts Britain's gross debt of 85.2% of GDP this year, then 85.4% in 2022-23, before peaking at 85.7% in 2023-24. 

The Irish Government sees debt here at 99% next year, based on an adjusted measure. 

At 84.57 pence, sterling was little changed against the euro after the budget. Traders are looking to next week's Bank of England meeting on November 4, which may decide to hike interest rates. 

Reuters said markets are now assigning a 62% probability of a British rate increase.