Honey, who shrunk the economy?
The UK economy contracted in January, new data shows, putting the Chancellor under more pressure.
Britain’s economy contracted again in January, shrinking by 0.1%, raising fears that we are moving closer by the day towards recession.
And what did Rachel from “Complaints” Reeves have to say about the anaemic growth? Instead of blaming the Tories for the miserable state of the country’s economy as she has been doing for months, now she is pointing to the Donald across the Atlantic.
Speaking on a visit to Babcock’s dockyards at Rosyth in Scotland, this is what she said: “The world has changed and …across the globe we are feeling the consequences”, implying the threat of President Trump’s tariffs combined with the decision by the UK and European countries to wean themselves off the US and up defence spending have triggered greater uncertainty in global markets.
While that’s true, the Chancellor’s comments were disingenuous at best as the latest GDP figures are for January. Trump didn’t take office until the end of the month and his threat to withdraw military aid to Ukraine - thus forcing European countries to “rearm” and increase their defence spending - didn’t emerge until last month.
Yet at the same time that the Chancellor blamed global economic uncertainty for the downturn, she added that higher defence spending would give the economy a lift with growth coming from more investment and jobs: “That’s why we are going further and faster to protect our country, reform our public services and kickstart economic growth to deliver on our plan for change. And why we are launching the biggest sustained increase in defence spending since the cold war.”
Can both be true? Lower growth from a more jittery world and higher growth from greater defence spending, spending which will take months if not years to come through? Sounds lame to me.
What we do know is the economy has been on the skids since last summer, going into freewill after the Chancellor’s high-tax and high-spend Budget which put the brakes on companies hiring new workers or investing ahead of the National Insurance hikes coming in April and a rise in the minimum wage.
Surprisingly, City economists were surprised by the contraction as they had forecast a sliver of growth. You have to wonder what planet they are on since every business survey for the last few months showed that confidence has fallen off a cliff while every young entrepreneur you talk to is heading for the US.
The latest figures from the Office of National Statistics are particularly depressing as they compare to a 0.4% rise measured in December. More worryingly, manufacturing output fell by 1.1%, reversing a rise of 0.7% in December last year. The steepest declines were in construction, house building and the oil and gas industries were all down.
Services increased by just 0.1%, with falls in hospitality, the arts and entertainment making the biggest dent in growth. No surprise there. Consumer confidence is also at rock-bottom as households tighten their belts ahead of another round of higher bills for water, electricity and other utilities drop through their letterboxes in April.
The Chancellor will need some better excuses when she delivers her Spring Budget in two weeks time. And if she fiddles yet again with taxes, she will have only herself to blame for plunging us into recession.
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I know I'm getting old, but Rachel Reeves hasn't the faintest clue. But I guess she is a woman who went to a state school! Well done everyone.