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(Bloomberg) — The U.K. economy still hasn’t recovered from the September mini-budget that sent gilt markets into chaos, a leading trade group said, warning of a damaging recession lasting most of next year.
The British Chambers of Commerce said the promise of sweeping tax cuts by Liz Truss’s government, which caused the pound to fall sharply, “is expected to have a long-term impact on borrowing costs for both businesses and consumers.”
Truss lasted only seven weeks as prime minister and his successor, Rishi Sunak, tried to build confidence by keeping a tight rein on public finances. However, this led to higher taxes, which the BCC said further damaged business confidence.
“It is now clear that September’s mini-budget and autumn statement have had a further chilling effect,” said Alex Veitch, director of policy at the BCC. “Very few companies will be willing to invest because they face high prices, interest rates and taxes.”
Read more: BOE governor says UK gilt market still not back to normal
Investment, already below pre-pandemic levels, will fall by a further 3% next year amid uncertainty, the BCC said. It expects UK output to sink to 0.9% this quarter and continue to fall in the first three quarters of 2023 before picking up slightly to 0.1% this time next year.
Meaningful growth will only return in 2024, the group’s economists said. Inflation is likely to have peaked at 11% and will ease to 5% by this point next year, they added.
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