The UK economy experienced a contraction of 0.1% in May, following a 0.3% decline in April. This downturn contrasts sharply with the strong growth from the first quarter of the year. Future growth appears modest, posing fiscal challenges for the Chancellor, whose options include cutting spending, increasing borrowing, or raising taxes. Limited fiscal headroom and public borrowing complicate the situation, as does the burden of the triple lock on pensions. Tax rises are anticipated in the upcoming Autumn Budget, but politically sensitive decisions loom.
The economy contracted by 0.1% in May, following a 0.3% contraction in April. Growth over the first half of the year is now expected to be modest.
The Chancellor's fiscal headroom remains limited by high levels of public borrowing and debt, and her spending plans are heavily reliant on kickstarting the economy.
The OBR's July report highlighted the intense burden that the triple lock on the state pension places on the UK economy; any attempt to undo it would move the Government into treacherous waters.
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