Forecasts are one thing, results are another. It’s a tough morning for the government, as the Office for National Statistics publishes the first quarterly growth figures since Labour entered Downing Street. The figures are disappointing: the UK economy only managed to grow by 0.1 per cent between July and September, lower than had been expected (market consensus was 0.2 per cent). Furthermore, GDP fell by 0.1 per cent in September this year, with production output – which contracted by 0.5 per cent – acting as the main contributor to the fall.
The news lands just after Rachel Reeves’s first Mansion House speech, where free trade, city regulation and pension reform were all mentioned as part of Labour’s strategy to grow the size of the economy. Now, rather than simply amplify the message of her speech this morning, the Chancellor is having to speak about this latest round of growth figures, insisting she is ‘not satisfied with these numbers.’
One month’s growth figures do not tell the whole story. And it should be noted that forecasts have long been predicting that economic growth would slow in the latter half of the year. The problem for Labour is that it has couched every decision it has made so far – from inflation-busting pay rises for the public sector, to the tax-hiking Budget, to its promises for mass reform – as growth-boosting decisions. It also doesn’t help that there is now a clear contrast between the first and second half of the year – a dividing line that happens to coincide with the election.
This is one of the many problems that comes with making pledges around growth but not necessarily having the policies (or the supply side reforms) to back them up. The Resolution Foundation calculates that the UK is no longer the fastest growing economy in the G7. Having held the title from January to June, the UK has now ‘run out of steam’ according to the think tank, as it plummets down the league table towards the bottom of the pack.
Again, it should be stressed that one set of figures does not determine any country’s overall growth trajectory. But those medium-term prospects aren’t looking great either, with the Office for Budget Responsibility downgraded its growth forecasts for the latter half of this Parliament, after assessing Labour’s first Budget. While Labour keep insisting they think they can defy those growth projections (it’s happened plenty of times before), this first round of data suggests something’s got to change, or give, for GDP figures to meaningfully shoot up.
And there’s little time to spare. Britain looks much closer to stagnation than it does to sustainable growth. Having promised after her Budget that she would not be coming back to the country to raise taxes again, Reeves needs growth figures to rise to a sustainable level, so public services can at least be maintained without hiking tax rates once again. Right now, the UK is far, far off those numbers.
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