Watch: Spotlight turns on Reeves – and the state of our economy
We haven’t heard much from Rachel Reeves so far this year – probably a deliberate strategy – but is the Chancellor set to make waves next week at the Spring Statement?
Rachel Reeves didn’t have a great 2025. UK quarterly GDP growth peaked in Q1 at 0.7 per cent as firms front-loaded their activity to get ahead of Trump’s tariffs before slumping to 0.3 per cent in Q2 and then flatlining at 0.1 per cent for the final two quarters of the year. That line tells its own story, but within it there were moments of absurdity such as the Chancellor sobbing in the Commons and tragedy such as the deeply damaging period of speculation leading up to the Budget.
Politically, the government hasn’t enjoyed a great start to 2026. At one point it looked as if the Prime Minister was about to be forced out of office or at least challenged for the leadership – and the Chancellor’s fate is tied to Keir Starmer’s. Little wonder she’s kept a low profile. She flew in and out of Davos virtually unnoticed, and she didn’t make the guest list for the PM’s big China trip.
OBR warning on Employment Rights Act
Next week, she’ll deliver the annual Spring Statement at which she’ll have to respond to the OBR’s latest forecasts on growth and unemployment. The fiscal watchdog won’t formally score the government against its fiscal rules as, in a sensible move, they’ll now only do that once a year at the Budget, but they might allow themselves a “we told you so moment” – given what they said at last year’s Spring Statement.
It was March 2025 and Labour’s Employment Rights Bill was in the early stages of its parliamentary development. Commenting on what we knew about it at the time, the OBR said: “Employment regulation policies that affect the flexibility of businesses and labour markets or the quantity and quality of work will likely have material, and probably net negative, economic impacts on employment, prices, and productivity.”
And so it has come to pass. Unemployment rose, continued to rise, and is now forecast by JP Morgan to surpass the pandemic-era high, touching 5.5 per cent within a couple of months. Remember, it was 4.2 per cent when Labour came into office. Remarkably for a Labour government – a Labour government – they don’t seem to care.
When she delivered last year’s Spring Statement, Reeves declared it would “kickstart economic growth” and bring about a “new era of national renewal.” Alas, it did not come to pass.
Reeves’ tricky tasks
Next week when she delivers the set-piece statement to the Commons she will attempt a number of difficult things. Firstly, she will try to avoid making any news. No new tax or spending announcements are expected. Secondly she’ll try to tell us that we are in fact experiencing national renewal, that interest rates have come down, inflation is falling and by some creative measures our economic growth is ahead of the pack. She will invite us to ignore the evidence of our own eyes.
Finally, she’ll try to demonstrate that the government’s prudent management of the economy has delivered a multi-billion pound windfall through lower borrowing, following strong financial figures in January showing a £30bn surplus after borrowing for the financial year to January 2026 came in at £112.1bn, around 11.5 per cent lower than the same 10-month period last year. Happy days. Though it still marked the fifth-highest April to January borrowing run on record.
What’s more, this is only worth celebrating if you get your kicks from the one-off spike in tax revenue that follows major tax hikes and behavioural change. In this case much of the relief came from people selling their assets and investments in the run up to last year’s Budget. In other words, January’s borrowing figures are a sugar high.
Pressure from the left
The problem for Reeves is that Labour MPs, never the most financially literate or fiscally cautious bunch, will put pressure on the government to spend the savings. Given that Starmer is now basically a prisoner of his MPs and left-leaning cabinet ministers, expect intense debate this Spring over where the money should be splashed.
And of course, we’ll get those economic forecasts from the OBR on growth and unemployment, setting the context for the political and economic debate that will, before you know it, lead us up to this year’s Budget.
My fear is that a low-key Spring Statement followed by political turmoil in the Labour party – basically a given with local elections just a few months away – will mean we face at best another year of managed decline or, at worst, a harsh leftward turn from a government that has already demonstrated that it doesn’t have a clue how to grow the economy.
Reeves has been keeping a low profile, but the spotlight is about to turn on her.