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Chancellor Says UK Economy Is Facing "Challenging Times" As Cost Of Living Rises

Nadhim Zahawi has said the UK economy is facing "challenging times" (Alamy)

4 min read

Chancellor Nadhim Zahawi had said that resilience in the private sector "bodes well" for the UK economy despite new warnings of a looming recession.

On Thursday the government held a crunch meeting between ministers and energy firms, which failed to produce any fresh action for tackling soaring energy bills, which are predicted to hit over £4,200 a year. New figures from the Office for National Statistics show the UK economy has shrunk by 0.1% in the last three months, prompting further fears that a recession could follow.

Zahawi claimed the difficult financial figures were partly because of Covid and Russian president Putin's decision to use gas prices as a "tool" to punish the West for supporting Ukraine as he set out the support going to families to help with rising bills.

"There is no doubt these are challenging times," Zahawi told Sky News on Friday morning. 

"I think what the numbers show today is the contraction is partly because of the Covid activities actually reducing, but also real resilience in the private sector, which actually in many ways bodes well.

"But nonetheless challenging times. My focus is very much to deal with what Putin is doing which is effectively using the gas price as a tool to hit back at us for the help we are putting into Ukraine. That cost of living is a challenge and of course we are midway through getting the £27bn into people's bank accounts."

Zahawi added that the government was pressing ahead with plans to introduce targeted support to households in the coming months, despite pressure to go further in the wake of the forecast rises, which have almost doubled since the support package was announced by then-Chancellor Rishi Sunak earlier this year.

"In the next couple of months you'll see an additional £324 going into the 8 million most vulnerable households. £400 for every bill reduction, that has to be the focus," Zahawi said.

"And then of course focussing on growth again. Yes, of course there are headwinds. I was in the private sector before becoming a politician, growth comes from private investment, from private business, which is why we have to look at how we encourage private business to make that investment in the economy."

Pressure is rising on the remaining leadership candidates, Rishi Sunak and Liz Truss, to outline concrete steps for how they would tackle the cost-of-living if made Prime Minister in September.

But speaking to Sky News, Work and Pensions Secretary Therese Coffey, who is backing Truss' campaign for leadership, said it was right the candidates did decide policy "on the hoof" without the backing of a thorough government analysis.

"We have already had direct intervention that is underway. But more money is due to come through and that is already in train for more money to go to every household but its important that Liz makes that, if she is Prime Minister, gets those options that are being worked up across government and makes that considered approach," she said.

Truss has already come under pressure over her plans to help households keep more of their money by introducing a range of tax cuts if made Prime Minister, with critics warning they would do little to help vulnerable families, including pensioners and those on benefits, who already pay little to no tax.

But Coffey insisted the leadership frontrunner was experienced in dealing with vulnerable households.

"Liz represents a constituency where the median earnings are lower than the city of Liverpool, she knows what it is like for households who are struggling with the cost of living," she said.

"I experience that in my role as an MP as well as being Secretary for Work and Pensions. That is why these measures are being worked up and they will be considered, but it's important rather than making policy on the hoof that a considered Prime Minister will wait for that advice that comes and then be able to make a judgement on what needs to be done and what level of support may be needed."

She insisted that Truss' previous comments about wanting to avoid giving government "handouts" to households would not stop her from introducing more targeted support to the most vulnerable. 

"Every option will be considered in terms of support schemes that may be needed, whether it is a targeted way or the general way of removing that national insurance increase which Liz is absolutely committed to do in an emergency budget," she added.

"People are going to get help. I think it is about what change in help may be needed, but help is already being given and will be given in the future as well."

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