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The Chancellor’s UK Spending Review Is Expected to Be Bleak

Chancellor Rishi Sunak will carry out a UK spending review next week, and analysts fear that it will continue bleak data. Indeed, the government’s spending plans could be seriously hampered right up until the next election, in 2024.

Further Details

It is feared that Sunak’s review will contain details of the biggest economic downturn since the end of World War II, which would have a huge effect on public spending plans. The chancellor is likely to base his future spending on the theory that the pandemic will still be affecting the national economy by the time of the 2024 election.

The government’s forecasts are made independently by the Office for Budget Responsibility, and they say that the national economy will suffer a contraction of close to 11% this year, which is in line with the estimates provided by the Bank of England and would be the poorest annual figures for over three centuries.

Plans to Reset the Economy

Prime Minister Boris Johnson has already spoken of a need to reset the government and the economy, in an attempt to recover from the devastating effects of this crisis. This could mean putting a greater focus on green projects and spending more money in the north of England.

It is thought that the forecasts will help to support the idea that spending on vital infrastructure will help the economy to grow, but that it won’t be enough to achieve a full recovery from the damage done during the two lockdowns.

We could see a return to the late 2019 level of the economy by the end of 2022, but the economic damage done this year could still represent up to 3% of the overall public finances by the time of the next election. Meanwhile, numerous businesses in various sectors are using international debt collection to help survive 2020.

All of this adds up to some difficult decisions to be made on issues such as public spending and taxes. It is expected that taxes won’t be raised yet, but that the upcoming spending review will show that things are moving in that direction.

Manufacturing Suffered a Steep Fall in November

The introduction of a second lockdown and the rising number of coronavirus cases in November led to a fall in the number of new orders received by the UK’s factories. The Confederation of British Industry (CBI) confirmed that the monthly order book balance in the manufacturing sector dropped to -40.

This followed on from the figure of -34 seen in October, which was the highest it had been in seven months. An earlier Reuters poll had suggested a figure of -39. Despite this, output readings were stronger than they had been in more than a year.

Anna Leach is deputy chief economist at the CBI, and she said that “global demand has been hit” due to lockdowns across the world, leading to manufacturers lowering their expectations. Mass testing and the successful roll-out of a vaccine are among the key factors that should help to ensure a return to a normal trading position.