UK halts overseas development aid amid overspend concerns

Bloomberg

The UK temporarily pauses overseas development aid that is not deemed critical because of concerns about rising pressure on government budgets, people familiar with the matter said.
The Foreign Office informed some staff a freeze is necessary because crises including Russia’s war in Ukraine have led to additional expenditure that means the government is in danger of overspending, according to the people, who spoke on condition of anonymity.
Any payments above £1 million ($1.2 million) are barred unless critical to life or unless their blockage leads to additional costs, the people said. New contracts and activity linked to agreements that have yet to start are also being paused, they said.
The government said in a statement that it’s “currently prioritising essential overseas aid funding such as providing humanitarian support to the people of Ukraine.”
The new rules are in place until the fall when a new prime minister will be able to take decisions on whether to stop or resume some aid payments and activities, one of the people said. The pause essentially means that the UK is all but halting overseas aid payments for now.
The move is a blow to Britain’s aid recipients, who are already reeling from the country’s decision to slash its aid budget to 0.5% of gross national income from 0.7% to help repair the budget deficit in the wake of the Covid-19 pandemic. The cut, pushed through by the then Chancellor of the Exchequer, Rishi Sunak, was estimated to be worth about £4 billion at the time.
Sunak is now vying with Foreign Secretary Liz Truss to succeed Boris Johnson as UK prime minister and Conservative Party Leader. The winner is due to be announced September 5 and take power the following day.
Parliament approved Sunak’s cut despite a significant rebellion among Tory MPs, which included former Prime Minister Theresa May and former International Development Secretary Andrew Mitchell.
Sunak argued that it was necessary to make the “commitment more secure for the long term, while helping the government to fix the problems with our public finances.”
Ministers remain committed to the 0.5% spending target, with a return to 0.7% “when the fiscal situation allows,” the government said in the statement.

UK Economists See
Growing Recession Risk
Economists are growing increasingly pessimistic about UK, with the risk of a recession now seen as far more likely than not and interest rates expected to go higher than previously thought.
That’s according to the latest Bloomberg survey, which was carried out after the Bank of England unleashed its biggest interest-rate hike in 27 years and warned of almost two years without a quarter of growth
because of cost-of-living crisis.
The half-point rate rise is expected to be followed by a similar increase in September as policy makers battle double-digit inflation, according to the median forecast in the survey. A subsequent quarter-point hike in November will take the BOE benchmark to 2.5%, above the previously forecast peak of 2%.
That’s still leaves economists less hawkish than traders. Money markets are pricing in rates above 3% by February.
Unlike the BOE, economists see the UK avoiding a recession, with a small contraction in the fourth quarter followed by stagnation in the early months of 2023 and then a resumption of modest growth. However, the risks of a slump are growing.
The probability of a recession is now estimated at 75%, up sharply from 44% in early July and higher than any time
since September 2020 when the
pandemic was raging.