Chancellor Rachel Reeves's tax rises have been blamed for damaging the economy (Image: Getty)

       Rachel Reeves has been accused of creating a “tax time bomb” as Britain’s economic slump continued and experts warned a recession was looming. Conservatives blamed the Chancellor’s tax rises after new figures showed the economy shrank by 0.1% in May, following a 0.3% drop in April, with manufacturing and construction suffering most.

       But the downturn, coupled with expensive U-turns over winter fuel payments and disability benefits, means the Chancellor could be forced to impose even more tax increases to balance the books in her autumn Budget, economists said. Highlighting increases in National Insurance, Shadow Chancellor Sir Mel Stride said: “Thanks to Labour’s reckless choices, the economy actually shrank in May. This will pile even further pressure for tax rises in the autumn.

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       Rachel Reeves told to 'level with people' and admit she will have to put up taxes

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       Rachel Reeves told to 'level with people' and admit taxes will rise

       Building society bosses issue urgent savings warning to Chancellor

       “Labour’s costly U-turns, on winter fuel and welfare, have created a ticking tax time bomb.

       “Under Labour, we have seen taxes hiked, inflation almost double, unemployment rise, and growth stagnate. With more taxes looming, things will only get worse and working people will pay the price.”

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       Ms Reeves joined Sir Keir Starmer and Cabinet colleagues for an away day at the Prime Minister’s Chequers country retreat in Buckinghamshire on Friday, where the Labour leader led talks about a “refresh” of his government following a series of humiliating U-turns.

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       Global trading conditions, including US tariffs, contributed to the UK’s poor economic performance, but employers said they were suffering because of the Chancellor’s decision to increase taxes on employers and hike the minimum wage.

       Ben Jones, lead economist at the Confederation of British Industry, said: “With business costs rising, many firms are maintaining a cautious approach to investment.

       With growing fiscal challenges and the autumn Budget on the horizon, the Chancellor must provide clear reassurance – no new taxes on business and instead offer a commitment to work alongside firms to dismantle barriers to growth.”

       However, the slowdown means tax revenues may be lower than expected and force the Chancellor to find more money from somewhere, according to Susannah Streeter, head of money and markets at financial services firm Hargreaves Lansdown.

       She said: “A fall in activity is likely to hit tax receipts, just at a time when there’s a bigger hole to fill after the Government was forced to backtrack on spending cuts to welfare.”

       Restoring winter fuel payments to most pensioners and axing cuts to Personal Independence Payments means Chancellor is spending ￡6.5billion more than planned.

       But the Institute for Economic Affairs said plugging the gap with taxes could plunge the economy into recession.

       Julian Jessop, economics fellow at the free market think tank, said: “Another negative shock in the autumn Budget could easily be enough to tip the economy over the edge again.”

       Matthew Ryan, head of market strategy at global financial services firm Ebury, warned: “Britain may be heading for recession far sooner than markets had anticipated.

       "Consumers and businesses are being hammered on multiple fronts. The Government’s much maligned business tax increase is proving particularly damaging, as this is not only squeezing bottom lines, but clobbering Britain’s labour market.”

       Earlier this week, the Prime Minister refused to rule out stealth increases in income tax, which could involve extending a freeze on tax thresholds rather than increasing them in line with inflation.

       Ms Reeves last year insisted: “I have come to the conclusion that extending the threshold freeze would hurt working people.” But asked by Conservative leader Kemi Badenoch if the Government could make this same commitment now, Sir Keir told Parliament: “No Prime Minister or Chancellor is going to write a Budget in advance.”

       Ms Reeves is also under pressure from Left-wing Labour backbenchers to introduce a wealth tax, which she has not ruled out.

       Responding to the growth figures, Mr Reeves said: “Getting more money in people’s pockets is my number-one mission. While today’s figures are disappointing, I am determined to kick-start economic growth and deliver on that promise.

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       Rachel Reeves is driving a runaway train - and she's about to run out of track

       752 Comments

       Andrew Neil savages Rachel Reeves for 'spouting nonsense' in furious rant

       559 Comments

       Rachel Reeves told to 'level with people' and admit she will have to put up taxes

       49 Comments

       'Catastrophic!' Kemi Badenoch exposes Keir Starmer for 'flirting with wealth tax demands'

       12 Comments

       Rachel Reeves may target millions with punishing income tax hikes to plug ￡40bn hole

       106 Comments

       UK economy shrinks another 0.1% in disaster for Rachel Reeves

       534 Comments

       Labour's first year in power sees economic growth promises turn into broken dreams

       104 Comments

       Keir Starmer warned he risks 'another winter fuel crisis' over stealth tax bombshell

       8 Comments

       Rachel Reeves' 'triple-locked' body language 'a key sign of low confidence' at PMQs

       25 Comments

       Rachel Reeves has just one option left to stop UK going bust - and NOBODY will like it

       62 Comments

       'Needs to go!' New calls for triple lock 'replacement' in betrayal of pensioners

       12 Comments

       Currys boss' chilling warning to Reeves: 'think very carefully' before you make it 'worse'

       43 Comments

       Bank increases interest on two Cash ISAs offering up to 4.20%

       Comments

       Rachel Reeves facing judgement day as recession fears explode over ￡30bn black hole

       430 Comments

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       Rachel Reeves has never run a business or created a job - that's why she's failing

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       Labour Leftie unleashes huge ￡120bn list of tax hike demands on Rachel Reeves

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       Rachel Reeves is driving a runaway train - and she's about to run out of track

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       Andrew Neil savages Rachel Reeves for 'spouting nonsense' in furious rant

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       Rachel Reeves told to 'level with people' and admit she will have to put up taxes

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       'Catastrophic!' Kemi Badenoch exposes Keir Starmer for 'flirting with wealth tax demands'

       12 Comments

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       Rachel Reeves may target millions with punishing income tax hikes to plug ￡40bn hole

       106 Comments

       UK economy shrinks another 0.1% in disaster for Rachel Reeves

       534 Comments

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       Labour's first year in power sees economic growth promises turn into broken dreams

       104 Comments

       Keir Starmer warned he risks 'another winter fuel crisis' over stealth tax bombshell

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       Rachel Reeves' 'triple-locked' body language 'a key sign of low confidence' at PMQs

       25 Comments

       Rachel Reeves has just one option left to stop UK going bust - and NOBODY will like it

       62 Comments

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       'Needs to go!' New calls for triple lock 'replacement' in betrayal of pensioners

       12 Comments

       Currys boss' chilling warning to Reeves: 'think very carefully' before you make it 'worse'

       43 Comments

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       Bank increases interest on two Cash ISAs offering up to 4.20%

       Comments

       Rachel Reeves facing judgement day as recession fears explode over ￡30bn black hole

       430 Comments

       POLL: Do you trust Rachel Reeves with Britain's economy?

       142 Comments

       POLL: Will Keir Starmer bring in wealth tax?

       138 Comments

       Rachel Reeves has never run a business or created a job - that's why she's failing

       68 Comments

       Labour Leftie unleashes huge ￡120bn list of tax hike demands on Rachel Reeves

       56 Comments

       FTSE 100 hits 'record high' fuelled by mining stocks rally and BoE rate cut expectations

       1 Comments

       Rachel Reeves dealt massive blow as she's warned more firms will go bust

       6 Comments

       Rachel Reeves is driving a runaway train - and she's about to run out of track

       752 Comments

       Andrew Neil savages Rachel Reeves for 'spouting nonsense' in furious rant

       559 Comments

       Rachel Reeves told to 'level with people' and admit she will have to put up taxes

       49 Comments

       'Catastrophic!' Kemi Badenoch exposes Keir Starmer for 'flirting with wealth tax demands'

       12 Comments

       Rachel Reeves may target millions with punishing income tax hikes to plug ￡40bn hole

       106 Comments

       UK economy shrinks another 0.1% in disaster for Rachel Reeves

       534 Comments

       Labour's first year in power sees economic growth promises turn into broken dreams

       104 Comments

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       “The choices we have made in our first year in government have seen us extend the ￡3 bus fare cap, fund free school meals for over half a million more children, press ahead with plans to deliver free breakfast clubs for every child in the country and increase the National Minimum and National Living Wage, giving a pay rise to 3million workers.

       “There’s more to do, that’s why in the Spending Review we boosted investment and jobs, through better city region transport and record funding for affordable homes, as well as backing major projects like Sizewell C.”

       The poor economic figures may have one silver lining, as they could encourage the Bank of England to cut interest rates and reduce the cost of some mortgages, experts said.

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