Rachel Reeves talks pension funds in Mansion House speech
Heaven knows the Tories left the UK in a mess, but after the pandemic and cost-of-living crisis things were starting to look up. The economy grew an impressive 0.7% in the first three months of 2024, beating every country in the G7.
Staff at the usually sober Office for National Statistics (ONS) couldn’t contain their glee, describing GDP as going “gangbusters”.
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GDP grew another 0.5% in the second quarter, lifting total growth to 1.2% for the six months to June 30.
Once again, we were ahead of the pack globally. The recovery was fragile but things were looking up.
Five days into the third quarter on July 5, Keir Starmer’s Labour Party took power. Our new PM and his chancellor Rachel Reeves then did a strange thing.
They started talking the economy down, telling all and sundry that the UK was in a mess and things would get worse before they'd get better.
They also terrified everybody by warning of "difficult decisions" in the Autumn Budget, by which they meant loads of taxes.
Sentiment slumped. Companies stopped hiring. Consumers stopped spending. Gloom prevailed and now the results are in.
This morning, the ONS revealed GDP growth slumped to just 0.1% in the first three months of the new Labour government.
The word ONS director of economic statistics Liz McKeown used was “subdued”. Not gangbusters, but subdued.
Which is putting it mildly.
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Chancellor Rachel Reeves claims growth is at the heart of everything she does. Newsflash: It's not (Image: Getty)
Reeves has made a heap of mistakes, starting with scrapping the Winter Fuel Payment, but her biggest error was to give the nation four months to fret about her Budget on October 30.
CBI lead economist Ben Jones pinned this on today's low number: “Uncertainty ahead of the Budget probably played a big part, with firms widely reporting a slow-down in decision making.”
NIESR associate economist Hailey Low agreed, saying that today’s dismal growth figures “reflect the impact of pre-Budget uncertainty”.
Everybody expected the Budget to be bad, but in practice it was even worse.
Especially for businesses, which are the engine room of economic growth. Reeves slapped them down with a brutal ￡25billion in extra taxes.
She did this by hiking employers’ NI contributions, slashing the threshold at which they pay NI and lifting the minimum wage by an inflation busting 6.7%.
Andrew Higginson, who also chairs the British Retail Consortium, called the triple whammy “too much to bear”.
And he’s right. We'll see the impact in the final quarter of the year. Then all through 2025 and every year after that.
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The Budget raid will cost big employers like grocery giants Tesco and Sainsbury's a fortune, forcing them to hike prices, reduce pay growth and cut payrolls.
None of which will do anything for growth.
Worse, as the Bank of England warned, her Budget will be inflationary, which means interest and mortgage rates are likely to stay higher for longer, too.
Last year, Starmer pledged a Labour government would make Britain the fastest growing economy in the G7. Instead, he’s taken it from top dog to second worst in months. Nice work.
Instead of rising, the economy actually fell in September, by 0.1%.
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Today's GDP figure is a crushing blow for Reeves, who is still reeling from the dismal reception to her Budget.
She informed us today that: “Improving economic growth is at the heart of everything I am seeking to achieve, which is why I am not satisfied with these numbers.”
Reeves is right. Her job is to boost economic growth. Instead she's stopped it in its tracks. "Not satisfied" doesn’t begin to cover it.