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How much trouble is Rachel Reeves in?

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Christmas may be two days away but there is little reason for cheer in 11 Downing Street. The Chancellor faces another wave of bad economic news this morning. Revised figures from the Office for National Statistics (ONS) show there was no growth in the last quarter, between July and September. The update comes as the Confederation of British Industry (CBI) raises alarm over the prospects for the UK economy next year. The CBI’s latest growth indicator states that expectations in the private sector are at their lowest point since Liz Truss’s mini-budget in 2022.

In response to the figures, Rachel Reeves has warned there are no easy fixes:

The challenge we face to fix our economy and properly fund our public finances after 15 years of neglect is huge. But this is only fuelling our fire to deliver for working people. The Budget and our Plan for Change will deliver sustainable long-term growth, putting more money in people’s pockets through increased investment and relentless reform.

Concerns are being raised that the UK could be on course for a recession – with a technical recession defined as two consecutive quarters of negative growth. The shadow business secretary Andrew Griffith has accused Rachel Reeves of ‘killing businesses and jobs’ with her ‘tax-raising spree and trash-talking her economic inheritance’, warning ‘if there is a recession – and based on these CBI expectations that seems increasingly likely – it will be one made in Downing Street’.

Even if Reeves manages to avoid this, the UK economy looks set for a bumpy ride. On the release of the report, the CBI's Alpesh Paleja warned the UK is on course for ‘the worst of all worlds’ as ‘firms expect to reduce both output and hiring, and price growth expectations are getting firmer’. The CBI has pointed the finger of blame at the Chancellor's Budget, which raised additional taxes to the tune of £40 billion – as ‘exacerbating an already tepid demand environment’.

So, what are Reeves's options? The Chancellor will hope that changes on planning rules and capital spending will help the UK's prospects in the medium term. Yet of all of Keir Starmer’s cabinet, Reeves may have had the roughest start to government – and there is little to suggest it will get any better anytime soon. Not only does the economic outlook look difficult, Reeves’s colleagues have raised concerns with a number of her decisions. The first major decision to axe the winter fuel allowance isolated parts of the left. The announcement last week that there would be no compensation for the WASPI women despite previous supportive comments has served to further antagonise unhappy MPs. Reeves is also facing a backlash from the charity sector over the effect of her employer national insurance rise on the sector.

But perhaps Reeves’s biggest problem is that MPs in the centre of the party are starting to question her judgment. When it comes to Starmer's clunky start to government, initial blame was pointed at Sue Gray, who subsequently left her role as Chief of Staff and was last week announced as a new Labour peer. But the decisions that could really hamper Starmer next year as he tries to reset his premiership are the economic ones. There have been reports over the weekend (so far denied) that Starmer's new chief of staff Morgan McSweeney is considering a joint No. 10/11 economic unit that would give Downing Street greater influence on the Treasury.

Now the job of a Chancellor often involves making unpopular decisions that disappoint both voters and colleagues. Going into the new year, Reeves may have to do more of this as negotiations for the spending review get underway. She has already said that she doesn’t plan to repeat this year’s Budget and go back with a begging bowl asking for more tax or opting for more borrowing. To avoid that, Reeves ultimately needs economic growth – yet despite her naming growth as her priority, it is proving very difficult to come by.

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