Rachel Reeves is accused of holding back the economy after Britain eked out growth of just 0.2 per cent in August _ Hieuuk
Rachel Reeves was yesterday accused of holding back the economy after Britain eked out growth of just 0.2 per cent in August amid the Chancellor’s relentlessly ‘negative’ rhetoric.
Figures from the Office for National Statistics (ONS) showed the UK attempting to fight back over the summer after two months of zero growth.
But experts said Ms Reeves’s doom and gloom had prevented Britain from doing better – and that fears over tax rises in her Budget threatened a further dampening of momentum.
It is the latest evidence that Labour’s strategy of talking the economy down, accusing the Tories of leaving the worst economic inheritance since the Second World War – a claim described as ‘baloney’ in the City – has backfired.
The ONS said August was a ‘strong’ month for sectors such as accountancy and retail and some manufacturers while construction saw a recovery after shrinking the month before.
Rachel Reeves put a positive tone on the news on Friday, pointing to a major investment summit being held next week
Official figures showed GDP expanding 0.2 per cent at the end of the summer after two grim months of zero growth
But Simon French, chief economist at City broker Panmure Liberum, said: ‘The frustration has been how much better it could have been without the over negative framing of the economic inheritance.’
Ben Jones, lead economist at the Confederation of British Industry (CBI), said there were ‘encouraging signs’ in the latest GDP figures.
But he added: ‘Our surveys suggest that businesses may have tapped the brakes again in September amid speculation over potential Budget announcements.
‘Anecdotally, it’s clear that some firms have paused hiring and investment decisions pending more clarity over the direction of the new government’s economic policies.’
The comments from prominent voices in the business world highlight how much the mood has soured in the three months since Labour entered power.
Back then, markets and investors were cheered by the prospect of a government with a stable majority promising pro-growth policies.
But after the Chancellor claimed to have found a £22billion black hole in the public finances and warned that would mean tax rises in the Budget, sentiment darkened.
It raised fears of a hike in capital gains tax – hitting second home owners and other investors in UK assets – as well as raids on pensions savings and inheritance tax and an increase in fuel duty which could hurt millions of motorists.
The Institute for Fiscal Studies (IFS) this week warned that £25billion worth of tax increases will be needed just to avoid cutting real terms public service spending.
Ms Reeves could give herself wiggle room for more investment spending – separate from the day to day budget for things like teachers’ and nurses salaries’ – if as expected she adjusts Treasury rules on debt. That would allow her to borrow tens of billions more.
The UK economy has yet to recover the trend growth from before the pandemic
But such a tweak could also prove risky if investors who lend to the government by buying bonds think she is going too far.
Already, yields on ten-year bonds – the rates investors charge for lending to the Treasury – have climbed back to pre-election levels.
Meanwhile survey after survey has shown that Reeves’s gloom has cast a pall over everyone from consumers to bosses and investors.
Neil Birrell, chief investment officer at asset manager Premier Miton, said August’s growth ‘feels like a long time ago now’.
He added: ‘Since then, concerns over government fiscal policy have dented consumer and business confidence and it’s hard to believe that won’t have a real world impact.’
Julian Jessop, economics fellow at free market think-tank the Institute of Economic Affairs, said: ‘The return to growth in August adds to evidence that the UK economy still has plenty of positive momentum.
‘But the Government’s gloomy messaging and uncertainties over the direction of policy in many areas continue to cast a long shadow.
‘Worries about the tax burden and the Government’s other plans on everything from energy policy to employment rights are dampening business and consumer confidence and delaying investment and recruitment.
‘The prospect of another surge in government borrowing is now starting to spook Investors in the bond market too.
‘The Chancellor will therefore still have to tread very carefully to ensure that the Budget does not derail the recovery.’
