Kwarteng faces £60billion black hole in public finances as borrowing costs rise again

The hole in public finances will be smaller if Mr. Kwarteng succeeds in reviving the economy. However, Citi expects its efforts to fail with anemic annual growth averaging 0.8% over the next five years.

Borrowing is expected to soar to nearly £200bn this year, the third highest post-war level, as forecasts predicted a two-year recession in the UK.

Debt interest costs will rise to their highest level as a percentage of GDP since 1949 at over £100billion next year, more than £10billion higher than forecast before the mini-budget that caused shocks turmoil in UK bond markets.

The Green Budget also revealed that higher interest rates next year will cost the average household more than £1,500, adding to a cost of living crisis that has sent energy bills soaring and is set to do push food price inflation up to 17% in the spring. .

Citi’s Benjamin Nabarro said the average household’s real income will decline 2% in real terms per year over the next two years as inflation hits.

He expects the economy to contract by 0.6% in 2023 and another 0.2% in 2024, with unemployment reaching 5% at the start of 2024, the highest level since the start of 2021, when the country was in a deep Covid lockdown.

Mr Nabarro also expects house prices to fall by 7% next year due to higher interest rates, despite Mr Kwarteng announcing a reduction in stamp duty .

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