Chancellor warns of 'tough few months ahead', amid highest inflation in 40 years

Chancellor Rishi Sunak (pictured) also said he would cut tax for businesses in his Budget this autumn. Credit: PA

The Chancellor has warned of a "tough few months ahead", as inflation hit its highest level in 40 years in the UK.

In a speech to the CBI on Wednesday evening, Rishi Sunak said he stands ready to do more to help families cope with the impact of rising inflation.

The Chancellor also said he would cut tax for businesses in his Budget this autumn.

Mr Sunak called on businesses to “invest, train and innovate more” to help boost productivity and improve the long-term prosperity of the UK. But he warned of a “perfect storm” of supply shocks rocking Britain, warning that “the next few months will be tough”.

Speaking at the annual dinner of the business organisation, the Chancellor told businesses “we are on your side” and called on them to help increase productivity and enterprise, adding: “We need you to invest more, train more, and innovate more.”

Rishi Sunak described the UK's economic situation as 'extremely serious'. Credit: PA

The Richmond MP told business leaders he would cut taxes in the autumn budget, to encourage innovation and investment.

“That is the path to higher productivity, higher living standards, and a more prosperous and secure future.

“Our role in government is to cut costs for families. I cannot pretend this will be easy. The next few months will be tough, but where we can act, we will.

“We have provided £22 billion of direct support, and we are going further. In October, we’re cutting energy bills by a further £200.

“In just a few weeks’ time, the national insurance threshold will increase to £12,500.

“That’s a £6 billion tax cut for working people, and of course as the situation evolves our response will evolve.

“I have always been clear, we stand ready to do more.”

The Chancellor also used his speech to warn of the severity of the economic situation facing the UK.

“I hardly need to tell this audience that the economic situation is extremely serious,” he said.

“A perfect storm of global supply shocks is rolling through our economy simultaneously.”

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Among the supply shocks, the Chancellor listed global demand shifting from services to goods, Russia’s invasion of Ukraine, and a fresh wave of lockdowns in China.

He then called on businesses to help the UK overcome its economic weaknesses.

“We also need to overcome our longstanding weaknesses in investment, skills, and innovation,” he said.

He told the business leaders that Britain’s weakness in innovation has left it trailing behind the US in terms of productivity.

“Since the financial crisis, the rate of increase in innovation has slowed considerably,” he said.

“A weakness that explains almost our entire productivity gap with the United States.”

The Chancellor said that the UK’s lag in innovation was due to a lack of investment in the nation’s employees by its businesses.

“So why is this happening? The problem I don’t believe is any longer the government,” he said.

“Public sector net investment is reaching its highest sustained level since the 1970s.

“Yet capital investment by UK businesses, as a percentage of GDP, is a lot lower than the OECD average.”

He added that UK employers “spend just half the European average training their employees”, before calling on them to invest more.

“We need you. The wealth creators. The entrepreneurs. The leaders.

“We need you to invest more, train more, and innovate more.

“And as I’ve said previously, our firm plan is to reduce and reform your taxes to encourage you to do all those things.”

Financial expert Martin Lewis said he worries about "civil unrest", if the government doesn't do more to help families facing energy bill rises.

"The public mood is desperate, it is angry", he said, speaking on ITV's Peston show.

"If we don't sort this, when those bill rises come in the middle of October to £2,600 in the middle of Winter, I worry about civil unrest.

"So the government needs to get a handle on it, and they need to get a handle on it quickly, they need to listen, and they need to stop people making choices of whether they feed themselves or feed their children."

Mr Lewis, who founded the Money Saving Expert website, said he fears the country is moving towards "absolute poverty".

"We cannot allow that to happen", he said.