As the 30 October Budget approaches, there has been heavy speculation around the future of Inheritance Tax (IHT) and Capital Gains Tax (CGT).
However, another aspect of the economy that could be impacted is inflation.
With the inflation rate recently falling to 1.7 per cent, the lowest we have seen in three and a half years, Chancellor Rachel Reeves finds herself at a crossroads.
The Office for National Statistics (ONS) attributes this drop to lower fuel prices and reduced airfares, which have brought inflation closer to the Bank of England’s two per cent target.
However, this temporary relief could be overshadowed by rising energy costs due to Ofgem’s recent price cap increase.
A balancing act for the Chancellor
For Reeves, her first Budget will need to focus on keeping inflation in check while tackling significant financial hurdles left by the previous Government.
Labour has reported a £22 billion gap in public finances, which has fuelled talk of tax increases and spending cuts, potentially totalling £40 billion.
These tough measures may help temper inflation by lowering demand, but they also risk stifling economic growth, already crawling at just one per cent this year.
The Bank of England’s next move
The Bank of England, meanwhile, is mulling over a potential interest rate cut in November, possibly bringing rates down to 4.75 per cent.
This move will heavily depend on the outcome of the Budget.
If the Chancellor opts for drastic spending cuts, inflationary pressures could ease, giving the Bank room to lower rates.
On the flip side, insufficient action may force the Bank to maintain higher rates for longer, impacting both borrowers and savers.
What does this mean for you?
The Budget could affect the bottom line of both businesses and individuals alike.
Tax hikes and spending cuts may tighten budgets, while inflation and interest rates will play a critical role in shaping your finances.
Preparing for Budget Day
The decisions made in Westminster will ripple through the economy, and preparing for potential changes could be the key to safeguarding your financial future.
For more information on inflation, the Budget, and how it will affect you, please contact our professional team of accountants today.
