A few journalists have pointed it out. So have some Conservative and Reform MPs, think tanks and one or two of the City banks. Now, it is official: the Bank of England (BofE) has warned that Chancellor Rachel Reeves’s October Budget has caused Britain’s economy to stagnate. The real question now is when will the pressure on Reeves to reverse some of the measures in her catastrophically misjudged Budget become so intense that she has to give in?
For a central Bank, the language was about as harsh as it gets. In its latest assessment of the economy, while keeping interest rates on hold, the BoE argued that businesses were reacting to the Budget with ‘lower headcount, hours, and pay and higher prices than otherwise’. It downgraded its forecast for the current quarter from a 0.3 per cent expansion, to zero growth, and even that may prove too optimistic.
It is hard to dispute that dismal verdict. After Reeves imposed massive tax rises on businesses with her rise in National Insurance (NI) contributions for employers, along with big increases in borrowing, the data has been dire: GDP is contracting, inflation is going up again, job vacancies are collapsing, and retail sales, up just 0.2 per cent today – even in the pre-Christmas period – have stalled.
In the first six months of the year, the UK expanded by 1.2 per cent, the fastest rate in Europe. That was one of the fastest rates within the G7. And then, Labour took over. By catastrophising the state of the economy she inherited, Reeves shattered confidence in Britain; the Chancellor then compounded that mistake by imposing steep tax rises on the most vulnerable sectors of the economy, such as hospitality and retailing. Meanwhile, the big rises in borrowing Reeves set out have sent gilt yields soaring; that, in turn, will soon feed through into mortgage rates as well.
The real problem, however, is that, under Labour, things are going to get worse over the next few months. We have only seen the start of the price rises, wage cuts, and job losses from the NI hike, while the spike in inflation, blame for which must be laid at the door of the government, means interest rates may well have to rise in the new year.
As the economy deteriorates even further, the pressure is only going to increase on Reeves to make savings in government spending and U-turn on some of her tax rises. It will be humiliating, especially for a woman who spent so much time boasting about her economic expertise. But there may soon be very little choice.
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