Jeremy Hunt promised economic growth will be top priority in his budget next month after the country slipped into recession.
The Chancellor insisted taxes will only be cut in a “responsible” way after official figures showed the economy shrank 0.3 per cent at the end of last year.
He insisted there is “light at the end of the tunnel” if the Government sticks to the plan after the data showed slight growth across the whole year.
Mr Hunt said: “When the Prime Minister made his commitment he was vry clear that tackling inflation had to come first… If we stick to our guns now, we can actually see light at the end of the tunnel.”
The Chancellor is considering cutting public spending plans if he does not have as much room for tax cuts as hoped in the spring Budget.
Mr Hunt said economies with “lighter taxes” do “tend to grow faster” than those with high burdens.
He added: “But I would only cut taxes in a way that was responsible, and I certainly wouldn’t do anything that fuelled inflation just when we are starting to have some success in bringing down inflation.”
Mr Hunt said inflation and high interest rates were behind the fall in growth, but insisted the economy was “turning a corner”.
He said: “While interest rates are high – so the Bank of England can bring inflation down – low growth is not a surprise.
“But there are signs the British economy is turning a corner; forecasters agree that growth will strengthen over the next few years, wages are rising faster than prices, mortgage rates are down and unemployment remains low.”
Office for National Statistics estimates put gross domestic product down 0.3 per cent at the end of last year.
It meant the country entered a technical recession – at least two quarters of the economy shrinking, for the first time since the first half of 2020 at the height of the covid pandemic.
When Britain was plunged into recession in 1980, the economy shrank by 2.1 per cent. In 2009 in the aftermath of the financial crash, the contraction was 4.6 per cent. Both came with high levels of unemployment.
Across the whole of last year, the economy grew by 0.1 per cent, the weakest growth since the aftermath of the financial crisis in 2009.
Shadow chancellor Rachel Reeves said Prime Minister’ Rishi Sunak’s promise to grow the economy was “in tatters”.
She said: “The Prime Minister can no longer credibly claim that his plan is working or that he has turned the corner on more than 14 years of economic decline under the Conservatives that has left Britain worse off.
“This is Rishi Sunak’s recession and the news will be deeply worrying for families and business across Britain.”
She said said figures show the “cornerstone of his leadership has been shattered”.
Ms Reeves also hit out at the Chancellor and said it is “dangerous” and “misguided” to be providing a “running commentary” on his spring Budget.
She said: “First of all, I find it extraordinary that the actual Chancellor of the Exchequer is providing a running commentary on his own Budget. I worked at the Bank of England for many years and I’ve been in politics for a long time now; I have never seen anything like it.
“With the Chancellor giving a running commentary, it is dangerous and it is very misguided, and I would urge him to stop this because it creates the uncertainty that we really don’t need.”
But she was accused of talking down Britain while planning to impose higher taxes.
Treasury Minister Bim Afolami said: “Labour do not have a plan for the economy – they’re just talking down Britain.
“All Labour are left with is their 2030 green promise which they themselves said has a £28 billion a year price tag, but with no plan to pay for it. They would take us back to square one, adding real pressure to every family’s cost of living with higher interest rates and higher taxes.”
The ONS said the contraction was broad-based across all main sectors of the economy in the fourth quarter.
Retail and wholesale trade were the biggest drag on output in December, with health and education sectors also both contracting, according to the ONS.
Barret Kupelian, chief economist at PwC UK, said while the UK is in a technical recession, it would likely not be long-lasting.
He said: “We expect this episode to be one of the shallowest recessions of modern times, as it does not reflect a sharp and protracted downturn in response to a specific set of adverse economic circumstances.
“Business activity picked up significantly in the beginning of the year, which should translate to better real economic data.”
