[Asia Economy Reporter Park Byung-hee] Raphael Bostic, President of the Federal Reserve Bank of Atlanta, argued that the UK’s tax cut policy increases the risk of a global economic recession.
According to major foreign media on the 26th (local time), President Bostic explained that the UK government’s new fiscal policy raises economic uncertainty, which in turn suppresses consumption and investment, potentially affecting not only the UK but also the US economy.
He said that the increased uncertainty caused by the UK’s tax cut policy will also heighten doubts about the future economic outlook among people.
President Bostic warned of the risk of reduced consumption and investment, stating that according to basic economic theory, increased uncertainty reduces the participation of consumers and businesses in the economy. He emphasized that ultimately, the choice of whether the reduced participation of companies and consumers means a contraction of the European economy and what considerations should be made for the US economy is important.
On the 23rd, UK Chancellor of the Exchequer Kwasi Kwarteng announced a fiscal policy worth ?45 billion (approximately 70 trillion won) centered on tax cuts. The UK government plans to reduce the basic income tax rate from 20% to 19% starting April next year and lower the top rate applied to high earners with incomes of ?150,000 from 45% to 40%. Additionally, to stimulate housing transactions, the threshold for stamp duty tax on housing prices was doubled from the current ?125,000 to ?250,000. The previous government’s plan to raise the corporate tax rate from 19% to 25% starting next year was scrapped.
Chancellor Kwarteng claimed that the tax cut policy could raise the UK’s economic growth rate to the long-term average of 2.5% next year. However, market participants warn that the government’s fiscal burden will increase and the UK economy could fall into crisis. Following the announcement of the large-scale tax cut policy, the British pound has shown a sharp decline.
Susan Collins, President of the Federal Reserve Bank of Boston, who began her term in July, also warned that external shocks could push the US economy into a recession.
Although President Collins did not specifically mention the UK tax cut policy, she pointed out that during periods of interest rate hikes, a single economic or geopolitical event could trigger a recession. She also emphasized that it has been confirmed that eradicating inflation is more difficult than expected, and the US central bank, the Federal Reserve (Fed), faces a challenging task.
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