UK budget predicted to be a nightmare before Christmas

On Thursday, Britain will hike taxes and slash public spending in a government budget signalling a return to austerity despite millions suffering a cost-of-living crisis in an economy facing recession.

Conservative Prime Minister Rishi Sunak, who took office just three weeks ago, has vowed to fix the economic havoc created by his short-lived predecessor Liz Truss, keeping in mind the sky-rocketing energy bills, decades-high inflation and the rising interest rates that are squeezing households.

Finance minister Jeremy Hunt will present his crucial budget in parliament, alongside official economic and inflation forecasts — with recent data signalling a grim outlook.

Chancellor of the Exchequer Hunt is expected to unveil fiscal consolidation totalling between £50 billion and £60 billion ($58.7 - $70.5 billion), media reports suggest.

"We're all going to be paying a bit more tax, I'm afraid," Hunt told UK media over the weekend, likening himself to the penny-pinching miser Ebenezer Scrooge in Charles Dickens' festive favourite "A Christmas Carol".

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"We will be asking everyone for sacrifices," he said, stressing however that the pain would fall disproportionately on the better off.

In more gloomy news, Britain's economy shrank in the third quarter as inflation soared, recent data showed, likely confirming it was already in a recession.

The Bank of England has said the UK economy would also contract in the current final quarter, meaning the economy was in a recession, which it warned could last until mid-2024.

"The big fiscal tightening ... is coming just as the recession begins," noted Capital Economics analyst Ashley Webb.

"The clear risk is that the fiscal consolidation deepens the recession," he cautioned.

Truss' unfunded tax-slashing budget sparked a collapse in the pound and an explosion in state borrowing costs during her 49-day tenure that began in September.

Investors fretted over a black hole of as much as £200 billion, forcing emergency intervention from the Bank of England.

She then fired her finance minister Kwasi Kwarteng and replaced him with Hunt, who set about reversing the much-criticised budget and curtailed a costly freeze in domestic fuel bills.

Yet, it was not enough to keep Truss in Downing Street.

Markets have since regained an even keel, after Sunak took the helm and political turmoil subsided, but retail lenders' mortgage rates remain elevated.

"What we are seeing now is that stability has returned to the United Kingdom," Sunak told Sky News in Bali, Indonesia, where he is attending the G20 summit.