Chancellor Rachel Reeves is facing mounting pressure over economic growth forecasts (Image: PA)
Rachel Reeves has been put on notice after “putrid” economic growth forecasts were slashed.
The Bank of England halved its predictions for the year and said there would be an inflation spike in the summer.
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Growth will now only be a measly 0.75%, said the Bank, having previously forecast it would be double that.
Critics warned the dismal figures should be a “wake-up call” for the floundering Chancellor.
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The Bank of England, led by governor Andrew Bailey, has altered its predictions for the year (Image: PA)
The stark message comes as another humiliating blow after Ms Reeves's disastrous Budget and amid mounting speculation that Prime Minister Sir Keir Starmer wants to sack her.
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Dire warnings of a “Reeves Recession” also intensified after the Bank said the economy contracted by 0.1% in the first quarter of last year, and will grow by only 0.1% in the current quarter.
But in a glimmer of hope for mortgage holders, interest rates were cut to 4.5%.
Liberal Democrat Treasury spokeswoman Daisy Cooper blasted: “The new growth forecast needs to be a wake-up call for the Chancellor.
“Rachel Reeves needs to see sense, scrap her National Insurance rise, which is hammering small businesses, and jettison her short-sighted red lines on a customs union. Only then will we see an end to these putrid growth figures.”
Reform UK deputy leader Richard Tice said: “It is the policies that need to change, not the people
“Our economy is falling, growth is absent and people are getting poorer due to higher bills from net zero and higher taxes.”
The growth downgrade is a further hammer blow to Labour, having made growing the economy its key priority.
But Ms Reeves said the Bank’s interest rate cut was “welcome news”.
“However, I am still not satisfied with the growth rate," she added. "Our promise in our Plan for Change is to go further and faster to kick-start economic growth to put more money in working people’s pockets."
The Bank's governor, Andrew Bailey, said: "It will be welcome news that we have been able to cut interest rates again today. We'll be monitoring the UK economy and global developments very closely and taking a gradual and careful approach to reducing rates further.
"Low and stable inflation is the foundation of a healthy economy and it's the Bank of England's job to ensure that."
But Mr Bailey said the bloated public sector is damaging the economy.
The governor said an increase of 500,000 workers in the public sector since lockdown had not been matched by a rise in productivity.
“It is fair to say we have seen an increase in public-sector employment. We haven’t seen a commensurate increase in measured public sector output,” he warned.
The bleak figures have provoked warnings Britain is in the grip of “stagflation” - a combination of high inflation and weak economic growth.
Tory MP George Freeman said the UK is now on “stagflation alert".
Posting on X, he said: “To kick-start growth, we need an emergency Budget in March with tax incentives for business confidence, enterprise, innovation, entrepreneurship, inward investment.”
Neil Birrell, chief investment officer at Premier Miton Investors, said: "With growth under threat and inflation remaining higher than hoped, that provides a combination that is likely to see the word 'stagflation' being bandied around”.
The Prime Minister is understood to be considering a shake-up of his top team to revive Labour’s plunging popularity.
Home Secretary Yvette Cooper is tipped to move the Treasury to boost the country’s economic fortunes.
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There are rumours Sir Keir Starmer wants to replace Rachel Reeves with Yvette Cooper (Image: Getty Images)
His reshuffle would see Starmer loyalist Pat McFadden, currently the Chancellor of the Duchy of Lancaster, shift to the Home Office as the Government seeks to get a grip on the immigration crisis.
Defence Secretary John Healey could also face the bullet because of an ongoing defence spending row.
The Bank said the increase in inflation, which measures the rate of price rises across the economy, is mainly due to higher-than-expected energy prices, rising water bills, and bus fares.
Inflation is set to only fall back to the Bank’s 2% target in the final quarter of 2027, it said, about six months later than previously thought.
Insiders say an “active process is going on” as Sir Keir considers how and when to execute a reshuffle, which is most likely to happen in the spring.
A Whitehall source said: “Keir needs to shake things up and there is an active process going on to consider all the options.
“There is no doubt that the first six months have been pretty rough and the poll ratings show that. Something needs to change.”
The source also said that former foreign secretary David Miliband could replace Lord Mandelson as president of Global Counsel.
Mr Miliband was understood to be on the shortlist to become the UK’s new US ambassador in Washington, a role eventually given to Lord Mandelson.
But a Downing Street source dismissed the speculation as "nonsense from a fantasist".
Ms Reeves has come under intense pressure since her Halloween Budget horror show with her policies deeply unpopular and politically damaging.
Her decision to scrap the winter fuel payment for pensioners has been met with a furious backlash, as has her move to clobber farmers and family businesses with a 20% inheritance tax raid.
The Chancellor’s National Insurance hike to employers has also sparked fears of a surge in unemployment this year, with some economists warning the economy should be on “recession watch”.
A further pinch point is due next month when the Office for Budget Responsibility, the Government’s spending watchdog, publishes its economic and fiscal forecast on March 26.
If, as is expected, the news is grim, the Chancellor could be forced to squeeze departmental spending again, further infuriating Cabinet colleagues.
Last month, Sir Keir said he had "full confidence" in Ms Reeves, but would not be drawn on whether she would stay in post until the next general election.
The PM’s official spokesperson was forced to clarify that the pair will work together "throughout the whole of this parliament".
Pressed if that meant working together with Ms Reeves as Chancellor, the spokesman replied: "Yes."
He said: "The PM was explicit. The Chancellor is doing a fantastic job and will work throughout the whole of this parliament in delivering for working people, and has [the PM's] full confidence."
Labour’s big pitch to voters has been its promise to drive economic growth.
Home Secretary Yvette Cooper could take over as chancellor (Image: PA)
But a flatlining economy, plus the Government’s failure to tackle the UK’s immigration crisis, has seen Labour and Sir Keir’s popularity tumble.
Earlier this week, Nigel Farage's Reform UK topped a landmark poll, coming ahead of Labour and the Tories for the first time ever.
Reform now sits on 25%, with Labour second on 24% and the Tories in third on 21%, according to the Sky News/YouGov survey.
The Lib Dems are on 14% and the Greens just narrowly below 10%.
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It is a dramatic slide in fortunes for Labour, which cruised to a landslide on July 4, with 35% of the electorate.
Furthermore, Mr Farage has a net favourability rating of -27, whereas Tory leader Kemi Badenoch dropped to -29 this month.
The Prime Minister is less popular than both his main rivals, with his net favourability rating now as low as -36.