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Today’s news that Britain’s economy unexpectedly shrank by 0.3% in the month of October will send a shiver down the spine of, not only the Treasury, but Number 10 too.
As we know, 2024 is almost certainly an election year, and the Bank of England is already warning of a 50-50 chance of a recession.
On 22 December, the last quarterly GDP figures are due to be revised – today’s figures mean this key growth statistic might be revised into negative territory.
Britain will formally be in recession if this is then repeated in February.
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The uncertainty about how bad the economy will now get is a big problem for Number 10 as it tries to work out what to do next.
There are divisions at the heart of government over when to call an election – with some believing it is madness to go before October, but others who are close to Rishi Sunak want him to go in May.
All of this is based on the idea the timing is in his control – events or the Tory party may yet force his hand.
But a key part of this is when to hold the budget.
Treasury figures are strongly playing down – though not ruling out – a February budget, though there are some in government who believe it is a good idea.
They argue that in a February budget, there will be less uncertainty around the amount of “headroom” the government has – allowing it to predict with more certainty how much additional money can be given away in tax cuts.
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Others think this “headroom” figure – the wiggle room the government can borrow before it breaches its fiscal rules – will be better for them in February than March.
Given that they need to present a positive economic story, whatever the underlying figures, this approach may soon look quite attractive.
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