UK budget: Economy set to avoid recession this year, Hunt says

Highlights:

• Hunt says UK to avoid recession
• OBR sees GDP in 2023 -0.2% vs previous forecast -1.4%
• Hunt has defied calls for tax cuts now
• Hunt wants more people back in the workforce
• Skills training and investment incentives expected
• UK economy lags behind peers

Britain's economy is set to avoid a recession in 2023 but will still contract this year, finance minister Jeremy Hunt said on Wednesday as he made a budget speech which included measures to speed up economic growth.

Under a new set of forecasts, gross domestic product was set to shrink by 0.2% in 2023 rather than contract by 1.4% as projected in November by the Office for Budget Responsibility (OBR), Hunt told parliament.

Since November, energy costs – which soared after Russia's invasion of Ukraine – have come down and there have been signs of a recovery in some economic data.

"Today the Office for Budget Responsibility forecast that because of changing international factors and the measures I take, the UK will not now enter a technical recession this year," Hunt said as he presented his budget in parliament.

The independent OBR forecast that economic output would grow by 1.8% in 2024 and by 2.5% in 2025, Hunt said, compared with its previous forecasts of growth of 1.3% and 2.6% respectively.

Britain's is the only Group of Seven economy yet to recover its pre-pandemic size, having already suffered a decade of near-stagnant income growth before the COVID-19 hit to activity and a surge in inflation, which remains above 10%.

"Despite continuing global instability, the OBR report today that inflation in the UK will fall from 10.7% in the final quarter of last year to 2.9% by the end of 2023," Hunt said.

Hunt has ruled out a major spending spree or big tax cuts in his budget plan.

But he confirmed a three-month extension of energy bill subsidies for households and extended a decade-long fuel duty freeze.

Hunt said the government would add 11 billion pounds to the defence budget - which has been stretched by Britain's support for Ukraine in its war with Russia - over the next five years.

Many economists have said he probably wants to hold back some fiscal firepower for closer to a national election which is expected in 2024. The opposition Labour Party is far ahead of the ruling Conservatives in opinion polls.

Hunt - who was rushed into the Treasury last October to undo the plans for unfunded tax cuts that sowed chaos in financial markets during Liz Truss's brief premiership - has pledged to get Britain's 2.5 trillion pounds of debt falling as a share of GDP in five years' time.

He said Wednesday's forecasts by the OBR showed that fiscal target was on course to be met with a buffer of 6.5 billion pounds.

Instead of spending heavily now, Hunt was expected to use his budget speech to address some of the root causes of Britain's economic problems such as the fall in the size of the labour market after the pandemic.