An ex-governor of the Bank of England has cautioned that the UK faces a “more challenging” period of austerity. More than the one that followed the financial crisis to stabilize the economy.
According to Lord Mervyn King, “much higher taxes” may be imposed on the typical citizen to pay for public expenditures.
Chancellor Jeremy Hunt is expected to present his economic goals on October 31.
He has already repealed nearly all of the tax reductions proposed by Liz Truss.
“This government will make the hard choices required to ensure trust and confidence in our national finances,” declared Mr. Hunt.
Lord King stated that “it is time to front up” with the people about the nation’s problems during an interview with Laura Kuenssberg on Sunday.
He said, public spending isn’t decreasing, if anything, it will increase. Thus taxes will need to increase to close the current difference.
Noticeably increased taxes in the UK
When asked if the UK would be experiencing the same kind of austerity that George Osborne, the previous chancellor, imposed in 2010. Lord King responded, “In some ways, it could be more severe.”
In his mini-budget for September, Mr. Hunt nearly completely undid the tax cuts. This included a 1p reduction in the April tax obligation. The choice to lower the top tax rate for individuals making £150,000 or more was already abandoned.
However, public spending is still ambiguous as the Conservative Party has a new leadership election. To select a leader and prime minister to succeed Ms. Truss.
Last week, Ms. Truss stated that she would uphold a promise made in the 2019 Tory manifesto by then-Prime Minister Boris Johnson to increase pensions following inflation.
Due to the triple lock, state pension benefits will increase by 2.5%, inflation, or the average annual wage.
Printing currency
Rishi Sunak said he would “deliver on the promise of the 2019 platform.” When he announced on Sunday that he was running to become the next Tory leader and prime minister.
The new Conservative-Liberal Democrat coalition administration announced the deepest cuts in public spending since the conclusion of World War Two during the financial crisis when the banking industry collapsed.
On Sunday, Lord King criticized central banks for failing to control inflation at a 40-year high of 10.1%.
He said that significant central banks, such as the Bank of England, have kept “printing money” to assist their economies during Covid lockdowns. This practice is known as quantitative easing. He said that this was a factor in the increase in inflation.
Between 2003 through 2013, when the Bank of England began implementing quantitative easing, Lord King served as governor. But he asserted that the effects of Covid lockdowns were distinct from those experienced at the time when sizable economies were coping with the global financial crisis.
Rating agency Moody’s describes the UK economic outlook as “poor”
Due to political unpredictability and high inflation, rating agency Moody’s has downgraded the UK’s economic outlook to “negative.”
The UK’s outlook, which indicates how likely it is to repay its obligations, was revised from “stable” to “negative” by Moody’s.
In essence, rating agencies assess a nation based on how robust its economy is.
Moody’s and Standard & Poor’s (S&P), another significant credit rating agency, kept their evaluations of the UK’s credit rating.
Governments or large corporations are given a score by rating agencies based on how likely they are to repay their debt.
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The cost for governments to borrow money on the global financial markets depends on the grade. So, theoretically, a good credit rating corresponds to a low-interest rate (and vice versa).
Every organization assigns a specific credit rating score to various nations. These range from the highest rating of “AAA,” which denotes “prime,” to the lowest score of “D,” which denotes “in default.”
Despite stating there are “risks to the UK’s debt affordability,” Moody’s maintained the fourth-highest rating on its scale, Aa3.
S&P kept the UK’s rating at AA, the third-highest rating level it offers, and revised its outlook from stable to negative.
The findings released on Friday did not result in a reduction of the UK credit rating, but a poor outlook suggests that one could occur in the future. Any outlook period normally lasts 12 to 18 months. The various outlooks for countries can be positive or steady.
