You might have heard of England, a sea-locked union of countries in Europe. A rather wealthy country, which has struck more luck compared to the rest of the world, has fallen into a recession this year. While this may be surprising—even shocking—recessions don’t happen for no reason.
Palace of Westminster / Houses of Parliament, London UK. Photo credit Ana Krispin (‘26).
A recession is defined by three consecutive quarters in which an economy has negative gross domestic product (GDP). Over the last three quarters combined, England has had a -0.4% GDP increase (meaning that the economy has shrunk 0.4%). According to Reuters, Englishfolk are to see a decline in the nation’s standard of living because of this shift.
Finance Minister Jeremy Hunt proposes tax cuts on work and business in order to strengthen this situation according to Reuters reporters Susan Absulla and Andy Bruce.
Policy makers most likely are hoping that citizens will spend the money which they keep from their taxes, but most economists agree that consumers will not want to spend extraneously if they do not have hope in the future of the economy. Rather, they will most likely save that money for a “rainy day.” Similarly, these citizens will also most likely refrain from investing at this time, in which case, it would make sense to keep taxes at the same level in order to spend that revenue to invest in businesses so that the mechanics of the economy become greased again.
The logic behind Hunt’s decision to cut taxes is thus: if the government cuts taxes, citizens could spend more in appropriate places, hence ensuring productive economic growth. However, if the government were the one to do the spending, it is possible that they invest in places with a smaller multiplier effect compared to where the consumer would spend. In which case, it would make more sense to let the consumer decide what the most effective receiver of their income is.
Ruminations of the Bank of England decreasing interest rates have also floated around. The effects of which would make it easier for firms to borrow money (because the cost of interest is lower), which would cause them to spend more and produce more, causing a chain reaction in the economy of increased production and consumption.
We do not know what the next prime minister's situation will look like, but the facts are that Rishi Sunak has promised economic growth, and there has been consistent economic strife in England since he was appointed.
The next general election in the UK will be no later than January of next year. It seems that England will be stuck with Sunak for quite some time, so it will be interesting to see what happens in their economy in the coming months.