March 27, 2023

Reaction – The UK’s growth stagnation

When the Chancellor stood up to deliver his budget last week, the latest quarterly GDP data showed UK GDP 0.8% lower than pre pandemic three years earlier while we remain pretty well at full employment. 

The problem of dealing with stagnation existed even before the banking crisis became apparent. Since then, with liquidity now in short supply, the issue is even more pertinent.

In the event, Hunt applied at best a sticking plaster to the gaping wound of growth stagnation.

He produced some costly plans for increasing the size of the labour force (which should add about ¼% to GDP according to both Cebr and the OBR) and produced a new regime for 100% allowances on some investment.

The latter will do a bit for investment but both the OBR’s estimates and those of my own organisation, Cebr, are sceptical that it will do much. One of the reasons why the tax changes won’t do much  is that most IT spending in the UK is already treated as operating expenditure and indeed accountants encourage this. On the latest figures which are for 2020, though the proportions were scarcely affected by the pandemic, £63.3 billion of IT spending on systems, software and services was expensed and only  £32.5 billion treated as cap ex. This doesn’t include IT hardware but that is normally a relatively small part of IT investment.

Read the full article.

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