Gloomy economic figures have heaped more pressure on the British government and its promise to improve growth. And if that wasn’t enough, there have also been some stark warnings about public finances and the country’s ability to service its debts.
All of this has led to a growing expectation that the UK chancellor Rachel Reeves will have to bring in some significant tax hikes later this year, or reduce government spending.
But both of these options could worsen the long-term economic outlook, by further constraining GDP growth. That was precisely the fate of governments that pursued an agenda of “austerity” – cuts in spending and higher taxes – to tackle the expanded public debt after the financial crisis of 2008.
