Spring Statement: Rachel Reeves ‘in denial’ as growth slumps
Rachel Reeves has been accused of being “in denial” as she insisted that her economic plan was working even as growth forecasts were slashed and unemployment was predicted to surpass pandemic-era highs.
Responding to yesterday’s Spring Statement, shadow chancellor Mel Stride said Labour’s economic agenda, which has raised the tax burden to a post-war high, had damaged the jobs market and hit “entire sectors of our economy”.
In her statement to the House of Commons, Reeves said updated forecasts by the Office for Budget Responsibility (OBR) showed her decisions as Chancellor were “starting to pay off.”
However, despite the bullish tone, the UK economy is forecast to grow at a slower pace than previously expected, with growth now forecast to come in at 1.1 per cent this year compared to a previous prediction of 1.4 per cent.
The OBR also said unemployment would peak later this year, with the rate currently standing at 5.2 per cent.
The watchdog said unemployment would fall to 4.1 per cent by the end of the parliament, an assessment dismissed as “markedly optimistic” by Fergus Jimenez-England, associate economist at the National Institute of Economic and Social Research.
The OBR slightly revised up its growth forecasts for 2027 and 2028, to 1.6 per cent, while inflation was projected to fall at a faster pace this year than pencilled in at the Budget in November.
Forecasts made before conflict in Iran
However, analysts have been quick to caution that an energy price spike could derail inflation’s downward trajectory. Reeves also revealed that, as a result of changes in calculations around government borrowing, the level of headroom had increased from £21.7bn to £23.6bn.
Analysts at Capital Economics warned this “could be swamped by events in the Middle East,” adding that “the conflict…has changed the outlook and the risks are that the leap in energy prices will mean UK inflation and interest rates are higher than the OBR is forecasting and real GDP growth will be lower.”
They warned that “come the Budget, there is a real risk that government borrowing will be higher and the Chancellor’s headroom will be lower.”
Reeves insisted that “borrowing is down, living standards are up, and the economy is growing,” while economists at Mizuho said some of the OBR’s predictions risk being “obsolete” and “irrelevant” given the escalating crisis in the Middle East.
Hours before Reeves took to her feet the cost of government borrowing rose in response to the dampening of interest rate cut expectations this month, from a 90 per cent chance to 30 per cent.
The Chancellor concluded her speech by claiming that “every pound that we have invested, every pound in the pockets of working people, every pound that we have secured in the forecast today, can be wiped out by a change of course.”
But Mitchell Palmer, economist at the Adam Smith Institute, said “the priority now must be to raise the economy’s growth potential [by] accelerating planning reform, reducing the cost of employing people, setting Britain’s nuclear and gas sectors free, and reforming taxes to encourage work and investment.”