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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Jeremy Hunt ‘to cut national insurance and freeze fuel duty’ in budget; bitcoin hits record high over $69,000 – as it happened

Jeremy Hunt United Kingdom United States Bitcoin BRC China Economy
King Charles III met with Chancellor of the Exchequer Jeremy Hunt in the private audience room at Buckingham Palace today
King Charles III met with Chancellor of the Exchequer Jeremy Hunt in the private audience room at Buckingham Palace today Photograph: WPA/Getty Images

Closing summary

Time for a recap.

Jeremy Hunt is to cut national insurance by 2p in his budget on Wednesday, the Guardian understands, in a move designed to offer voters a pre-election giveaway but which could mean steeper spending cuts after the election.

The UK chancellor is preparing to announce the second big cut to employment taxes in a year, after his decision to cut national insurance rates by 2p at last year’s autumn statement.

Wednesday’s move should save the average earner £450 a year, which combined with last year’s cut will add up to £900. However, the chancellor has been looking at further public spending cuts after the election as one way to pay for the tax reduction, despite economists’ warnings that such a move would cause public services to buckle.

Hunt and the prime minister, Rishi Sunak, have spent the last few weeks looking for ways to offer a tax cut on the scale of that announced last year as a way to boost the Conservatives’ flagging poll ratings in their last budget before an election.

More here:

The chancellor is also expected to freeze fuel duty, again.

In other news..

A swathe of major tech platforms are experiencing problems today, with Facebook and Instagram experiencing severe issues and Google hit by login problems.

Bitcoin has climbed to a new alltime high, trading over $69,000 for the first time, before slipping back.

UK car sales were their highest for any February in 20 years last month, driven by increased sales to businesses.

And there are hopes that the UK economy has ‘turned a corner’ and is exiting recession, after a pick-up in private sector growth last month.

But retail sales were soggy last month, as bad weather kept consumers away from the shops.

Here’s the rest of today’s news:

Tech platforms hit by outages

In the tech world, users are reporting problems accessing a range of services including Meta‘s Facebook, Messenger and Instagram platforms.

Technical problems are preventing users worldwide from accessing the social media platforms.

Users are also reporting problems accessing Google services, such as YouTube, and also flagging problems with Microsoft’s Teams….

Looking back at the UK budget tomorrow….The Institute for Fiscal Studies have said a 2p cut in national insurance will not prevent the tax take rising to record highs, at around 37% of GDP by 2028-29.

They also show the impact of more than a decade of freezes to fuel duty:

Gold also hits record high today

Bitcoin’s supporters sometimes describe it is ‘digital gold’.

And today’s record high comes just a few hours after actual gold also hit a record high.

The spot price of gold traded as high as $2,141 per ounce today,

AJ Bell investment director Russ Mould says gold is benefiting from increases in government debt around the globe, but particularly in the USA.

“It is unfashionable to focus on gold, especially when the Magnificent Seven are doing so much to propel US equities to new highs (or at least five of them are, anyway), and it is easy to dismiss the case for including the precious metal in even the most balanced of portfolios.

As Warren Buffett succinctly put it in a speech he gave at Harvard in 1998, ‘Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.’

“Yet, unusually, the market is shrugging off the Sage of Omaha’s words of wisdom and embracing gold instead. Its rise to new highs even means that in capital terms it has matched strides with the much more widely lauded S&P 500 index since the start of 1971, the year when President Richard M. Nixon withdrew America from the gold standard and pulled down the curtain on the Bretton Woods monetary system that had prevailed since the end of the Second World War. This nugget of data may give a warm glow to gold bugs.

Bitcoin didn’t spent terribly long at its record high – it’s now slipped back to $68k….

Updated

Bitcoin hits record high over $69,000

Newsflash: Away from the budget speculation, bitcoin has just hit a new alltime high.

The price of the world’s largest crypto currency just traded over $69,000, above the previous record set in November 2021.

It just hit $69,202.

Today’s rally means bitcoin has gained around 65% since the start of 2024, and almost 170% over the last six months.

Recent gains have been driven by the launch of bitcoin EFTs (exchange traded funds) by major asset managers, which make it easier to invest money in bitcoin.

Those ETFs have seen large inflows from investors, creating more buying pressure.

One potential option discussed by Tory MPs would be for Hunt to cut national insurance by 1p and also cut income tax by 1p, the Financial Times reports.

That would have a combined cost of about £12bn; more than the £10bn for lopping 2p off national insurance,.

The attraction is that voters might appreciate a cut to income tax rather than national insurance (which is a tax on earned income).

But one government insider insisted that Hunt would not announce income tax cuts on Wednesday, the FT adds. More here.

Updated

The Resolution Foundation have crunched the numbers, and show that those earning £50,000 or more would gain the most from another 2p cut in national insurance.

But, they point out, those earning less than £19,000 will be worse off overall, due to the impact of threshold freezes.

Adam Corlett, principal economist at the Resolution Foundation, explains that tax cuts this year are ‘sandwiched’ between rises earlier in this parliament, and likely increases in the next one:

“There are huge questions about whether Britain can really afford £20bn of tax cuts this year, given the insufficient outlook for public spending and the need to reduce our national debt.

“But the Chancellor has at least opted for a better approach than cutting income tax rates – prioritising workers who face higher tax rates than landlords and pensioners.

“But, while this is going to be a tax-cutting election year, it is sandwiched between significant past and future tax rises, with the Budget likely to only add to the number of tax increases coming in after the election.”

NI cut would be more like a 'tatty-looking ferret' than a rabbit

Even if national insurance rates are cut tomorrow, many workers would still face being dragged into paying income tax, or paying it at the higher rate, due to the freeze on income tax thresholds.

That freeze is causing significant ‘fiscal drag’, as rising wages push more people into tax higher bands.

Sarah Coles, head of personal finance at Hargreaves Lansdown, says:

“Reports suggest Jeremy Hunt has decided to cut National Insurance by 2p in the Budget. It wouldn’t be so much a rabbit pulled out of a hat as a slightly tatty-looking ferret dragged from a box, labelled ‘rabbit’. An income tax cut has been discussed for well over a year. A National Insurance cut would be far better than nothing, but it would be a scaled-down, less attractive option. Jeremy Hunt would just have to hope it didn’t bite.

With taxes swallowing such a massive proportion of GDP, any tax cut would be welcome. This one would save us an average of £450 a year. And while the biggest savings would be reserved for those earning more, every saving helps at a time when our own budgets are stretched so thin.

t’s easy to see why this may have pipped income tax to the post in the race for Budget tax cuts, because it’s much cheaper. A 2p cut would cost about £10 billion, which is more manageable for a Chancellor with shrinking headroom. However, the price Hunt would pay for opting for NI is clear. It would benefit fewer people. 27 million workers would pocket a tax cut, but millions more wouldn’t, because it wouldn’t affect the tax on pensions, and income from savings and investments like property. It means an awful lot of voters would get no benefit from the change.

Coles also points out that January’s cut to National Insurance hasn’t made a dramatic difference in the polls:

It may be that Jeremy Hunt has decided this is all he can afford to offer right now. The question will be whether it’s a enough of a blockbuster tax cut to move the dial on a general election.

Unfortunately, if NI is cut, it’s not as good as it may sound, because it would come at the same time as yet another freeze in the personal allowance and the higher rate tax threshold, which the OBR says will see 1.1 million more people dragged into paying income tax and 800,000 more forced to pay higher rate tax. It means the government would be giving with one hand and taking away with the other.”

King Charles and Jeremy Hunt pictured together ahead of Budget

The King has held an in-person pre-Budget audience with Jeremy Hunt at Buckingham Palace today, ahead of tomorrow’s fiscal event.

It’s traditional that before a Budget is presented, the Chancellor of the Exchequer meets with the monarch, usually the day before the Government’s plans for the economy are delivered in a statement to the Commons (at 12.30pm tomorrow).

Updated

Sky News are also reporting that the chancellor will cut national insurance by a further 2p in the pound in the budget tomorrow.

Their political correspondent, Matthew Thompson, says a debate has been “raging” inside Downing Street for the last few weeks about whether to cut NI rates or income tax.

There are two reasons why NI has been chosen, Thompson says.

One, it’s cheaper, as only paid by those in work, not those who are retired.

Two, this meant is is less inflationary.

But, he adds, an income tax cut is potentially the better option politicially, as people understand it more.

There is a fear within the government that they may not get “the political dividends they’re looking for” through a NI cut, Thompson adds – after all, Hunt announced a 2p cut in the autumn statement, and the Conservatives are still lagging well behind in the polls.

Yahoo Finance have details on what a 2 percentage point cut to national insurance would mean in practice:

Employees and self-employed workers currently pay 10% on earnings between £12,570 and £50,270 in Class 1 national insurance contributions.

This was reduced from 12% of earnings in the autumn statement, although the threshold to start paying — £12,570 — is frozen until 2028.

Analysis by the investment platform AJ Bell reveals that cutting the national insurance rate by two percentage points from 10% to 8% would be worth almost £250 to someone on a yearly salary of £25,000, with a maximum saving of £754.

Rachael Griffin, tax and financial planning expert at City firm Quilter, says:

It looks like Chancellor Jeremey Hunt has opted for the cheaper and potentially less headline grabbing option of cutting national insurance by a further 2%. This means that millions of hard-working Britons will see more money in their pockets every month, as the government tries to ease the pressure of the highest tax burden in decades. While a cut in taxes will for some be a needed boost, it hardly turns the dial much considering we are dealing with a historic tax burden at present. However, it will certainly be a crowd pleaser with someone earning £30,000 a year being around £58 better off a month if you also take into account the national insurance cuts in the Autumn Statement. However, many people don’t understand how national insurance works and a cut to income tax would have been easier for all to understand but crucially much more expensive

After the budget tomorrow, the Office for Budget Responsibility will give its verdict, alongside its latest forecasts for economic growth, borrowing, inflation and unemployment.

Economists predict a slightly downgrade to the OBR’s short-term growth prediction, PA Media reports.

In its previous forecast in November, the OBR had predicted 0.6% growth in GDP for 2023, with 0.7% growth in 2024.

However, last year the UK economy ultimately fell short of this, with 0.1% growth in GDP, according to the Office for National Statistics (ONS).

This was lower than expected after a contraction over the final half of 2023, which also meant the UK was in a technical recession.

Economists expect the UK to swiftly return to growth after the recession but widely predict subdued growth in 2024, with projections below the OBR’s previous forecast.

Experts at Pantheon Macroeconomics and Oxford Economics are both expecting 0.4% growth in 2024.

Pantheon said it expects lower-than-expected growth to cut tax revenues by around £4bn this year, although this is expected to dissipate over the next five years.

UK government bond prices are strengthening today, an indication that City traders are not too anxious about tomorrow’s budget.

This is pushing down the yield, or interest rate, on UK 10-year bonds (yields fall when bond prices rise, and vice versa).

Bond investors will be hoping that any tax cuts are ‘funded’, either through other tax increases or through spending cuts, rather than requiring additional borrowing.

How NI cut would benefit richer households

A 2p cut to national insurance rates would benefit wealthier households much more than poorer families.

The Institute for Public Policy Research thinktank has calculated that nearly half the benefit would go to the richest 20% of households, while just 3% would end up in the pocket of the poorest fifth of us.

Updated

Jeremy Hunt is also contrained by fears that the financial markets could wobble if he risks unfunded tax cuts.

Mike Coop, chief investment officer at Morningstar Investment Management Europe, says investors could push up UK borrowing costs if Jeremy Hunt takes risks:

“We see very limited scope for any sizeable tax, spending, borrowing, or regulatory changes and hence expect a muted economic and market impact. The government is severely hemmed in by a ferocious foursome of big debt, anaemic growth, threadbare public services, and high tax rates.

Markets have put the government on a short leash after the Truss mini-budget so any giveaways based on heroic assumptions about future growth and spending cuts will risk a rise in interest rates, no matter how politically compelling in an election year when Reform UK is on the rise.

“There is scope for funding up to £15 billion of tax cuts and spending increases due to shifts in inflation, interest rates and tax receipts compared to prior forecasts, though the government may choose to keep some dry powder for the Autumn Statement just prior to an election.

UK budgets get far more attention than they really deserve, argues Kallum Pickering, senior economist at Berenberg bank.

For two reasons, this is probably the case for tomorrow’s performance, he explains:

First, the government simply does not have the fiscal headroom to give the economy a big shot in the arm.

Second, as power is likely to shift to Labour later this year, at best, tomorrow’s announcements may be valid for between six to nine months before the five-year plans are torn up and rewritten by the next (likely Labour) chancellor.

That limited ‘fiscal headroom’ is measured against the government’s aim to have debt falling as a share of the economy in five years time – a “ludicrous target”, according to Paul Johnson of the Institute for Fiscal Studies.

See here for more on the fiscal rules:

Pickering also warns that while household-friendly tax cuts may help lift support for the Conservatives, they probably won’t dramatically change the economic outlook for the UK.

He says:

Nominal domestic spending (a proxy for demand) has been rising solidly but due to COVID-19 and war-related supply shocks, the UK has struggled to meet demand with sufficient supply – as indicated by stalling real GDP.

Better economic performance hinges on a recovery in supply. Tax cuts would boost demand when the situation for households is already improving. Real wages are rising and the labour market is strong.

If the Bank of England judges that tax cuts add to inflationary pressures, policymakers may be inclined to cut rates by less this year – de facto neutralising the impact of tax cuts.

Updated

Steven Swinford also explains why cutting national insurance is cheaper than a cut to income tax:

Cutting income tax is significantly more expensive as it benefits both workers and pensioners.

A cut of two percentage points in employee national insurance costs about £10 billion a year, while a 2p cut in income tax would cost £13.7 billion a year. There are also concerns that cutting income tax would be inflationary.

More here (£).

Updated

Jeremy Hunt 'will cut national insurance by 2p in the budget'

Back in the political world, Steven Swinford of The Times reports that tomorrow’s budget will include a national insurance cut of two percentage points.

A 2p in the pound reduction will cost an estimated £10bn, he reports.

That would take up most of the £13bn in fiscal headroom which the chancellor is thought to have to spend, and still have debt falling as a share of GDP in five years’ time.

Our Politics Live blog has all the latest from Westminster:

Updated

UK PMIs: what the experts say

February’s healthcheck on UK purchasing managers shows the services sector achieving continued growth, says Jenny Etherton, Director at PwC UK:

“The UK services sector is showing considerable resilience, with the PMI posting 53.8 in February - growing for the fourth consecutive month.

“Buoyed by new demand, especially from the US and Asia, services firms have been able to increase their prices and pass on rises in both wages and shipping costs to customers.

“Anticipation of lower interest rates, possibly materialising sooner than expected, has contributed to the growth of both business and consumer confidence. Despite the continued uncertainty around global economic and geopolitical conditions, almost 60% of the PMI’s survey panel expect business activity to rise in the coming year.

Kathleen Brooks, research director at XTB, points out that today’s PMI readings aren’t quite as strong as the flash readings taken during February.

She’s aso concerned that retail sales were weak last month (see opening post), which has been blamed on bad weather:

There was some signs of a softening in the UK economic data for last month.

The BRC like for like retail sales report for February was weaker than expected, rising by 1%, down from 1.4% in January, and lower than the 1.6% expected. The UK services PMI was also revised lower for February, to 53.8, vs. 54.3 initially. This also lowered the final composite PMI reading for February, which fell to 53, from 53.3. This is still the highest reading since May 2023, and new orders also rose last rose month, which is a sign that the economy remains strong. Overall, the February PMI surveys are still in expansionary territory, and they suggest that the UK economy bounced back in Q1, but maybe not as much as initially expected.

The UK economy outperformed the eurozone last month, although conditions are also improving across the channel.

S&P Global reports that the eurozone economy moved “closer to stabilisation in February” as the service sector returned to growth, for the first time since last July.

Overall, the eurozone private sector shrank again with the composite PMI Output Index coming in at 49.2. That’s up from January’s 47.9, but still below the 50-point mark showing stagnation.

The services PMI business activity index crept over that 50-point mark, rising to 50.2 in February from 48.4 in January.

Southern European countries are driving the recovery.

Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, explains:

“The [eurozone] service sector may be off to a better start in 2024 than anticipated. For the first time in seven months, the sector’s activity is expanding instead of shrinking. While the growth rate is fractional, it is complemented by positive developments in other PMI sub-indicators.

Particularly encouraging is the uptick in new staff recruitment by service providers, surpassing the sluggish growth rates seen in recent months. Moreover, the stability in incoming new business suggests a potential turning point in demand conditions.

Economic vitality in the Eurozone’s service sector stemmed predominantly in the South. Spain and Italy marked their sixth and second consecutive months of rising service sector activity, respectively, a contrast with Germany and France, where contractions continued.

UK economy 'turning corner' as private sector growth hits nine-month high

Newsflash: UK private sector output hit a nine-month high last month, a new survey shows, bolstering hopes that Britain is leaving recession.

The S&P Global composite Purchasing Managers Index, which tracks activity at services companies and manufacturers, has risen to 53.0 in February, up from 52.9 in January.

That shows a pick-up in growth, with service sector companies reporting a sustained increase in business activity last month, with the fastest rise in new work since May 2023.

Improving export sales helped to boost total order books in February, today’s services PMI report shows.

While output growth at service sector firms softened slightly in February, growth forecasts were the most upbeat since February 2022.

It suggests that the shallow recession that began at the end of 2023 may be ending, which should cheer the chancellor ahead of tomorrow’s budget.

Tim Moore, economics director at S&P Global Market Intelligence, explains:

“Another solid expansion of business activity across the service sector in February adds to signs that the UK economy has turned a corner after entering a technical recession during the second half of 2023.

New business intakes were a particularly bright spot as service providers reported the fastest order book growth since May 2023. Survey respondents cited rising business and consumer spending, linked to improved optimism towards the broader economic outlook.

Resilient export sales also provided support to service sector growth, as signalled by the strongest rise in new work from abroad for eight months.

BUT…. firms also reported that cost pressures have not abated.

The PMI report says:

On the inflation front, latest data indicated the strongest rise in input costs across the UK private sector since August 2023. Inflationary pressures intensified in both the manufacturing and service sectors in February, with the latter again posting a much faster overall rise in business expenses.

Updated

UK car dealers are also urging Jeremy Hunt to provide more incentives for people to buy electric cars, in tomorrow’s budget.

Following the news that UK car sales jumped in February, due to business customers, Sue Robinson, chief executive of the National Franchised Dealers Association (NFDA), says:

“It is promising to see that electric sales continue to grow after a bounce back last month, particularly as OEMs seek to meet the targets set by the ZEV mandate for this year. In recent months, this has primarily been driven by fleet rather than private demand.

“In spite of encouraging progress, it is crucial that the Government continues to work with dealers to attain the best outcomes for consumers.

“The Spring Budget provides a prime opportunity for the Government to keep this momentum going. NFDA urged the Government, in its Spring Budget submission, to increase consumer confidence in EVs through price incentives and improving electric charging infrastructure. NFDA also stressed to the Government to prioritise investment and growth in the UK automotive sector.”

UK's new car market records best February for 20 years

It’s official: UK car sales hit a 20-year high for a February last month, driven by business customers.

There were 84,886 new car registrations last month, the Society of Motor Manufacturers and Traders has just reported.

That’s a 14% increase on last year, and the best performance for any February since 2004.

But…… this growth is being driven by business customers, expanding their fleets of cars. Sales to private buyers dropped by 2.6%.

The SMMT says:

It was the 19th month of consecutive growth, which has primarily been driven by fleets investing in the latest vehicles.

Indeed, fleets and businesses were responsible for the entirety of February’s increase, with registrations up 25.2% and 15.5% respectively. Private uptake continued to struggle, with a -2.6% decline to record a 33.7% market share. February is traditionally volatile as the lowest volume month of the year, with buyers often electing to wait until March and the new number plate.

Sales of battery-powered electric cars rose by 21.8% year-on-year, lifting their market share to 17.7%, while petrol sales rose 13.3% and diesel shrank by 7.4%.

As flagged earlier, the SMMT is also urging the chancellor to cut taxes on new electric cars, and lower the tax on public EV charging.

The group says:

While consumers do not pay VAT on other emission reduction technologies such as heat pumps and solar panels, private EV buyers pay the full 20% levied on all cars, whether they be electric, petrol or diesel.

Halving VAT on new EV purchases would save the average buyer around £4,000 off the upfront purchase price – yet cost the Treasury less than the Plug-in Car Grant that was scrapped in 2022.2

Shares in Greggs have jumped 2.5% in early trading, after it reported a 27% rise in profits this morning (see 7.47am).

Most of the bakery chain’s staff will also benefit, as Greggs shares 10% of its profits with team members with at least six months of service.

That means thousands of Greggs workers will share £17.6 million in bonuses this month, PA Media reports.

Another freeze in fuel duty would be welcomed by the UK’s petrol retailers.

Gordon Balmer, executive director of the Petrol Retailers Association (PRA), said yesterday:

“The Spring Budget presents a pivotal moment for addressing the pressing concerns facing petrol retailers across the UK.

Fuel duty has long been a key concern, providing relief to motorists amidst escalating living costs. Temporary cuts and freezes have been welcome, offering relief amidst economic uncertainty. However, the prospect of reversing these measures poses a threat, potentially aggravating the financial strain on consumers already grappling with volatile global energy prices.

Conservative MP Jonathan Gullis is also cheered by today’s report that the chancellor will not lift duty tomorrow:

But as this chart shows, the 14-year freeze in fuel duty has cost the Treasury billions of pounds in lost tax, and also lowered the pressure on fossil fuel-powered motorists to drive less, or shift to electric cars.

The slowdown in the UK housing market has hit earnings at building materials supplier Travis Perkins.

Travis Perkins has reported a 61% drop in operating profits, from £285m in 2022 to £110m in 2023, after “a challenging year in weak market conditions”.

CEO Nick Roberts cautions that 2024 will be tough too:

“Ongoing economic challenges have significantly impacted our trading performance, driven by weakness in the new build housing and domestic RMI sectors, and compounded by deflationary pressures on commodity products. Faced with these challenges, we have invested to protect and build our leading market positions.

With market conditions expected to remain a headwind through 2024, the business is fully focused on improving profitability and enhancing cash generation.

Shares in Travis Perkins are down 3.3% in early trading.

Conditions in the London rental market are returning to normal, estate agent Foxton reports this morning.

In its latest financial results, Foxtons says:

Lettings market supply and demand dynamics have normalised, with increased levels of available rental stock and fewer tenants registering for each available rental property compared to 2023.

Rents soared in the capital last year, as a shortage of properties on the market allowed landlords to push up rental costs.

Foxtons has reported a 5% rise in revenues for last year, while adjusted operating profits rose 2%.

Updated

Bakers Greggs eyes more growth in 2024

In the City, bakery chain Greggs is aiming for more growth in 2024 after reporting a record financial performance for last year.

Greggs grew its like-f0r-like sales by 13.7% in 2023, its latest financial results show.

Total sales were up almost 20%, with Greggs’ expansion plans leading to a net increase of 145 stores (taking its total estate to 2,473 shops by the end of December)

Pre-tax profits jumped by 27% to £188.3m – swelled by a £20.6m insurance payout due to business interruption in 2020 during the pandemic.

Greggs benefitted from the slowdown in price rises for raw materials and energy last year

Greggs also reports that it has started 2024 “well”, with like-for-like sales up 8.2% ao far this year, and is confident of another year of good progress.

Roisin Currie, Greggs chief executive, says:

Our strong growth during these tough years for the British economy gives me great optimism for the years ahead.

Back in 2021, we were bold when we set out our ambition to double our sales by 2026 but we are ahead of our plan and have proven that our strategy to open new shops, extend into the evening, and build up our digital presence is a successful one.

Britain’s AI sector expected to get £100m extra funding in budget

Jeremy Hunt is planning to provide a budget boost to Britain’s growing artificial intelligence sector through a doubling of funding for the Alan Turing Institute – the national body for data science and artificial intelligence.

Despite being restricted in his scope for pre-election giveaways by the weakness of the public finances, the chancellor is expected to announce a five-year package of funding worth £100m.

The Treasury said the money would allow the Turing – set up in 2015 and named after the pioneering computer scientist and mathematician who died in 1954 – to make fresh advances in data science and AI.

The extra funding will be allocated to research in three areas where AI is seen as having an important role to play: transforming healthcare, protecting the environment, and strengthening defence and national security. Treasury sources said the money would have a direct impact on the public through better healthcare and tackling biodiversity challenges.

More here:

Jeremy Hunt set to freeze fuel duty in budget boost for drivers

Jeremy Hunt is expected to give motorists a £5bn pre-election tax break in tomorrow’s budget, by – once again – freezing fuel duty.

There are multiple reports this morning that the chancellor will extend the current 5p cut in fuel duty for another year.

Hunt is also expected to scrap an inflation-linked rise in duel duty – extending a freeze that began in 2011.

Another freeze would help motorists through the cost of living squeeze, at a time when motor fuel is rising at the fastest rate in five months. The Daily Mail says it’s a bid to show “the government is on the side of ordinary motorists”.

The Times reports:

Although not raising fuel duty in line with inflation and keeping the 5p cut will cost the Treasury £5 billion in the next fiscal year, it does not affect Hunt’s room for other tax cuts because they are deemed to be temporary — even though fuel duty has been frozen since 2011.

New data from the RAC this morning shows that average price of petrol rose by 4p a litre in February while diesel shot up by nearly 5p.

Yesterday, the chancellor insisted that he wants to move the UK to become a “lower taxed economy” but will only do so in a “responsible” way. That implies tax cuts funded by lower spending, rather than higher borrowing.

But new data today shows NHS funding faces the biggest cuts in real terms since the 1970s, an influential analysis shows, adding to the pressure on Hunt to prioritise public service funding over tax cuts.

A year ago, the Institute for Fiscal Studies pointed out that the chancellor could fund a bigger pay rise for public sector workers by cancelling plans for a fuel duty freeze….

The Society of Motor Manufacturers and Traders has also repeated its plea for “fairer” taxation of electric vehicles (EVs), urging chancellor Jeremy Hunt to halve VAT on the purchase of new EVs.

They also want public charging to be “as easy and affordable as plugging in at home”.

Currently, public EV chargers attract a full VAT rate of 20%; but if electric car drivers charge up at home, they only pay 5%.

New car market 'records strongest February in 20 years'

The new car market recorded its strongest February in 20 years, figures due this morning are expected to show.

The latest car registration figures from the Society of Motor Manufacturers and Traders (SMMT) are expected to show that new car sales rose more than 10% last month compared with February 2023.

The SMMT also reports that battery-powered electric vehicles had a market share of around 17% last month.

We’ll get the full sales data at 9am…

Introduction: UK retailers suffer washout February

Good morning, and welcome to our rolling coverage of business, the financial markets, and the world economy.

The health of the UK economy is in focus this week, as Jeremy Hunt puts the finishing touches to tomorrow’s budget.

And UK retailers are warning this morning that they suffered a grim February, as bad weather drove shoppers from the high street.

UK retail sales increased by just 1.1% year on year in February, much slower than the 5.2% annual growth posted a year ago in February 2023, the British Retail Consortium reports this morning.

That suggests a significant drop in sales volumes, as inflation was 4% in January.

While food sales rose 6%, non-food sales decreased by 2.5% year-on-year as consumers continued to cut back on footwear, household appliances, furniture and clothing.

But there was a pick-up in demand for toys to entertain fractious children unable to go out and play last month.

Helen Dickinson OBE, chief executive of the BRC, said:

“Consumer demand was dampened by the wettest February on record, translating into a poor month of retail sales growth.

Not even Valentine’s Day lifted customers out of the gloom, and gifting products that typically sell well, like jewellery and watches, failed to deliver. On the sunnier side, rainy weather did brighten sales of toys, as parents looked for ways to occupy their children indoors.

The BRC’s sales data paints “a gloomy picture”, says Danni Hewson, AJ Bell head of financial analysis.

“Retailers can’t do much when the weather is so bad, apart from slash prices or try to encourage greater online ordering.

“Sadly, the backdrop remains difficult for a lot of consumers as interest rates are persistently high and household finances remain under pressure. Therefore, time away from the shops is more likely to result in less spending rather than shifting the emphasis to the online sales channel.

Also coming up today

China has set itself the ambitious target of growing its economy by 5% this year, as it battles the slowdown in its property sector, weak investor confidence and geopolitical worries.

The target was presented at the opening session of the National People’s Congress, where China’s premier, Li Qiang, spoke of the “challenges” facing China’s leaders. He cited the global economy and regional tensions as hurdles for China’s recovery, as well as domestic issues such as low consumer demand in a challenging labour market.

And bitcoin is getting closer to its alltime high of $69,000, as the rally in crypto assets continues.

Overnight, the world’s largest crypto asset jumped as high as $68,828, meaning it’s gained 60% this year – and 161% over the last six months.

The launch of various exchange-traded funds which track bitcoin have helped push its value higher this year, analysts say.

Gold is also in demand, with the spot price of bullion near a record high this morning at $2,117 per ounce.

Kyle Rodda, senior markets analyst at Capital.com, adds:

“There are signs of slight irrational exuberance and maybe a squeeze of long-suffering shorts in some markets,” particularly bitcoin and gold.”

The agenda

  • 9am GMT: UK car sales for February

  • 9am GMT: Eurozone services PMI for February

  • 9.30am GMT: UK services PMI for February

  • 10am GMT: Eurozone PPI index of producer price inflation

  • 3pm GMT: US services PMI for February

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