Goldman Sachs forecasts ‘significant recession’ in UK after Liz Truss’ U-turns on tax cut
Liz Truss
Experts at Goldman Sachs warned of a deeper and “more significant recession” in the UK, following the sacking of Kwasi Kwarteng as chancellor and Prime Minister Liz Truss’ reversal of corporate tax decision.
In its report, the investment bank downgraded UK’s economic outlook, saying, “Folding in weaker growth momentum, significantly tighter financial conditions, and the higher corporation tax from next April, we downgrade our UK growth outlook further and now expect a more significant recession."
The firm reduced UK’s 2023 economic output forecast to a 1 per cent contraction from an earlier forecast for a 0.4 per cent output drop, with core inflation at 3.1 per cent at the end of 2023, down from 3.3 per cent previously, Bloomberg reported citing the report.
The UK prime minister on Friday announced to raise the corporation tax rate to 25 per cent, making a U-turn on a pledge to freeze it at 19 per cent.
Truss has been under fire ever since their newly formed government announced a mini-budget in a bid to tide over the cost-of-living crisis and provide cushion to people, who have been battered by food inflation and rising gas prices.
The controversial mini-budget— which proposed unfunded tax cuts, huge government borrowing and let energy companies off from a windfall tax—announced by Kwarteng sent financial markets into meltdown, due to which the pound sank to its lowest level against the dollar in decades.
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It was only after the Bank of England intervened that the market somewhat settled.
However, this led to the sacking of Kwarteng and renewed rumours of Tory MPs planning to oust Truss.
On Friday, Truss defended her economic plan, but declined to apologise to her party or the public over the turmoil.
“We recognize because of current market issues we have to deliver the mission in a different way. And that’s what we are absolutely committed to do,” she said.
(With inputs from agencies)
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