Impact and Criticism of UK's November 2023 Budget on Inflation and Growth
Bank of England deputy governor Clare Lombardelli informed MPs that the Budget measures introduced in November 2023 could reduce inflation by 0.4-0.5 percentage points for a year starting from the second quarter of 2026. The expected inflation reduction is driven by a combination of changes including energy prices, fuel duty adjustments, electric vehicle policies, and rail fare freezes. According to the Office for Budget Responsibility (OBR), these measures will cut inflation by about 0.4%. Inflation at the time stood at 3.5%, with forecasts predicting a decrease to 2.5% next year and a return to the Bank of England's 2% target by 2027.
Key Budget provisions include Chancellor Jeremy Reeves extending the 5p fuel duty cut until September of the following year. Additionally, the removal of green levies from energy bills and general taxation is expected to save households roughly £88 annually, though the insulation scheme for low-income households was scrapped, saving about £59. Rail fares are frozen until March 2027, marking the first such freeze in decades; typically, fare increases in January are calculated based on July's Retail Prices Index (RPI). Starting in April 2028, electric car drivers will face a road charge of 3p per mile, and plug-in hybrid vehicles 1.5p per mile, with these charges subject to inflationary rises.
While Lombardelli noted that the Budget's effect on economic growth is modest, there is a forecasted short-term boost of around 0.2% to GDP in 2027. Despite these measures, Conservative leader Kemi Badenoch criticized the 2024 Budget, arguing that it contributes to higher inflation.
