Economists have warned that Chancellor Rachel Reeves has exhausted the temporary store of 9.9 billion pounds, which may force her to raise the income tax to cover unexpected economic shocks.
The National Institute for Economic and Social Research (NIESR) said that slow growth and high interest rates have already eliminated the financial treasury hall, even before full economic repercussions were set by the possible trade war in Donald Trump.
NISR analysts stated: “Our expectations indicate that the Zero Capital Chamber is still completely balanced at the end of the expected period,” and they warned that without tax rising or spending cuts, the government has an unexpected economic insulation.
Reeves pledged to borrow only for investment and reducing debts as a share of gross domestic product, while excluding income tax increases, value -added tax, or national insurance contributions paid by workers. However, the employer's contributions have already raised 25 billion pounds in its first budget.
With the control of taxes and spending in Britain and the budget responsibility office (OBR), reducing growth expectations and confirming that the Capital Hall has disappeared, the pressure is escalating on the advisor either to find new revenue sources or reduce spending.
“The advisor needs to be estimated that there are conditions in which taxes may have to rise. If you are committed to financial rules and a shock that strikes the economy, to maintain those rules that may have to have to Increased taxes.
Reeves admitted the political dangers, warning that the risks in losing the upcoming elections if voters did not see any tangible improvements. Speaking in political partisan podcasts, she said: “In the upcoming elections, if people are still difficult for them to obtain a date for the doctor and they are not better, they will expel us as if they expelled the last much.”
A possible global trade war caused by Trump's proposed tariff can exacerbate Britain's economic challenges.
NIERS estimates that American duties – along with reprisals from other countries – can fly 0.25 percentage of GDP growth in the United Kingdom this year and to. In 2025, this may mean only 1.25 % instead of 1.5 %.
At the same time, economists estimate that inflation, which reached 3.2 % in January, will continue to decrease throughout the year. However, the customs tariff can add 0.4 exact percentage points to the main inflation rate, which leads to a 2 % increase in the price of the Bank of England.
Milard urged the UK government to resist revenge on the American tariff, especially on steel, warning that these measures will be a self -defeat: “Steel is important inputs in production. You almost kicked yourself by making the imported steel more expensive. I don't think it will be there A lot of gains, and you may raise your own costs.
Millard also asked whether the financial rules that she imposed in favor were the right approach, which indicates that it was an arbitrary goal rather than a measure of real economic sustainability: “This is an arbitrary rule set by the advisor itself. Does it have any relationship to long -term financial sustainability?”
Despite government borrowing and spending helps to support growth, NIERS expects only 1.5 % local GDP to increase this year – less than OBR expectations in October 2 %. Other analysts are more pessimistic. Capital Economics now expects that the gross domestic product will rise by only 0.5 %, decreasing from its previous estimation by 1.3 %, pointing to “higher taxes for companies, continuous withdrawal from previous interest rates, and demand abroad is softer.”
Meanwhile, Treasury Secretary Darren Jones defended the government's economic strategy, and insisted that the work focuses on “economic growth to start.” It highlighted the investment in infrastructure and housing, including plans of 1.5 million new homes, the Heathro III runway, and the Oxford-Gamperbridge growth corridor, which can add up to 78 billion pounds to the British economy.
With the escalation of financial pressures and economic risks, Reeves faces a difficult budget law – controlling growth without breaking its tax pledges or financial rules.