Autumn budget could see pandemic-levels of unempoyment​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​

The Resolution Foundation today said that Rishi Sunak and his Chancellor, Jeremy Hunt, face several “unpalatable” options to fill the £40 billion black hole in the economy.

It suggested that the Office for Budget Responsibility, alongside the autumn budget on 17 November, will likely include a recession next year.

The think tank added that the £40 billion shortfall which he has inherited will now likely require tax rises, not just spending cuts.

James Smith, research director at the Resolution Foundation, said: “The Government has a little over two weeks to finalise its plans to repair its economic credibility and the sustainability of the public finances.

“While the recent focus has been on conditions improving post-Trussonomics, the central picture remains one of a weaker growth, higher borrowing costs and expensive tax cuts that have left a fiscal hole of at least £40 billion to fill.

“History tells us that this will involve cuts to public investment, which are easy to announce but reduce growth in the longer term.

“Further austerity for public services is also likely, but there are limits to how big these can credibly be, as public services are already facing cuts of £22bn thanks to high inflation.

“This reality means that the Autumn Statement is likely to involve tax rises, not just spending cuts.”

The Government will have been encouraged in its attempts to reduce inflation following new that its energy bill scheme will help reduce inflation.

The Office for National Statistics yesterday confirmed that they would not count any increases to energy bills above the capped price towards inflation.

Meanwhile, the pound saw its recent daily gains against the US dollar slip away during Monday.

London’s stock exchange saw the FTSE 100 rebound to a five-week high, the highest level since before the former chancellor’s mini budget.

The index was pushed up by strong gains for energy firm Centrica, which announced on Friday it was reopening its giant gas storage facility, Rough.

It has also been helped up by gains across Britain’s high-street banks, amid expectations that the Bank of England’s Monetary Policy Committee (MPC) will raise the base rate by 0.75 percentage points on Thursday.

Higher interest rates can boost lenders’ profits as it means they get greater returns from loans, although there is a risk that gains will be offset by potential defaults from vulnerable customers.

The Bank of England is poised to unveil the biggest hike in interest rates for 33 years next week as the central bank continues its efforts to tame inflation.

Most economists think that the Bank’s Monetary Policy Committee (MPC) is likely to raise interest rates by 0.75 percentage points to 3 per cent at the meeting on 3 November.

It will be the eighth consecutive jump in interest rates by the Bank but will represent the biggest increase since 1989.