We may also expect the fiscal position to get even better. The withdrawal of COVID-19 support should start to reduce outgoings, plus the raft of tax increases already announced – most notably affecting National Insurance, corporation tax, and personal allowances – mean the deficit is expected to fall from 15.5% in FY2020–21 down to around 1% by FY2024–25. This potentially leaves room for some pre-election loosening, as some commentators have already flagged.
Chancellor under pressure to tackle the cost of living
The economic optimism of the summer is being increasingly tempered by concerns around rising inflation. The knock-on impact of a global and synchronised recovery in demand, tight labour markets, and COVID-19-constrained and disrupted supply chains, has led to shortages and significant pricing pressure across a number of sectors – most obviously in construction, hospitality and energy. These trends – albeit to an extent magnified by the media – risk the creation of a cost of living crisis as we head into winter, particularly for essentials such as food and drink, and energy. In the face of this, the Chancellor will come under increasing pressure to act, particularly on energy costs, and to provide additional support for both consumers and businesses.