Liz Truss would boost both UK growth and inflation, model shows

By contrast, a Sunak government would likely mean growth will be very slow over 2023, partly as a result of the increase in corporation tax he lined up when running Johnson’s Treasury, said Hanson. 
Liz Truss. Image: Bloomberg

UK Foreign Secretary Liz Truss’s economic manifesto would boost both economic growth and inflation if she wins the race to become prime minister, according to Bloomberg Economics.

Using Bloomberg’s SHOK index, economist Dan Hanson estimated in a new report that Truss’s plans would add 0.6% to gross domestic product in 2023, though that boost may be short-lived because it would likely prompt the Bank of England to raise interest rates. Inflation, already its strongest in decades, would be 0.4 percentage point higher by the start of 2024, he calculated.

By contrast, Hanson said former Chancellor Rishi Sunak’s proposals suggest he’s the “continuity candidate” and that they would have little material change to the economic outlook if he’s chosen to replace Boris Johnson.

Truss and Sunak are battling to succeed Johnson with results of who wins the ballot of Conservative Party members due on September 5.

Truss has outlined a series of tax cuts she would seek early on. Sunak has said he will wait for inflation to recede before loosening the fiscal purse strings. Truss is the bookmakers’ favorite to win.

Truss’s policies could force the BOE to raise its benchmark interest rate to 3.25% in the next year, 50 basis points above the forecast of most economists, said Bloomberg Economics. The proposed tax cuts would total £35 billion and wipe out most of the room allowed by the government’s current fiscal targets, its report said.

By contrast, a Sunak government would likely mean growth will be very slow over 2023, partly as a result of the increase in corporation tax he lined up when running Johnson’s Treasury, said Hanson.

© 2022 Bloomberg

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