2024-08-15 15:31:28
The latest data on the UK economy shows that the UK economy grew steadily in the April-June period, just as it did in the previous three months. The figures clearly show that the UK economy reached a turning point in the spring and that the UK economy continues to recover from a brief recession at the end of 2023.
Growth of 0.7% in the first quarter and 0.6% thereafter was not a boom. But it was a welcome return to normal growth after three years of crisis. At the same time, inflation figures have also returned to more normal levels.
Since 2024, the UK has been the fastest growing of all G7 advanced economies, even surpassing the United States.
While the picture would be different over a longer timeframe or if population growth is factored in, it raises legitimate questions about the new government’s claim of a “grim economic legacy” left by its predecessor.
The government’s main economic task is to achieve the highest economic growth in the G7 by the end of the parliamentary term. But the latest GDP data shows that this main economic indicator has already achieved this goal when the government took office.
Importantly, Labour made it clear during the election that its “economic mission” was to achieve several consecutive years of maximum growth before the end of Parliament, with a focus on GDP adjusted for population.
“Growth is our first and most important mission at the Treasury, but we have a lot of work to do to recover from the mess we have left behind,” said Darren Jones, Britain’s deputy chancellor, as the strong growth figures were released on Thursday.
He went into further detail about the Conservatives’ legacy to Labour, describing the historically high tax burden and national debt as “the worst fiscal legacy since the Second World War”.
However, the latest data poses considerable danger to the government’s budget strategy in the coming months.
In July, Chancellor Rachel Reeves laid out what she called a “fiscal black hole” that would need to be filled through cuts or savings in the end-October budget to meet her self-imposed borrowing limit.
Forecasts show that economic growth will slow by then. However, this is exactly the moment when the government can raise taxes further.
The Treasury also wants more savings on infrastructure and certain areas of research, areas often associated with long-term economic growth.
The Ministry of Finance believes that the burden of investment must be borne by the private sector, which will be guaranteed by political and economic stability, including strong discipline in public finances.
What some business leaders and former Downing Street residents often say privately is that “stability is not enough”.
By the fall, if stability pays off, the government will hopefully be showcasing some high-profile moves by big investors in energy, infrastructure and manufacturing.
At the Budget, the chancellor will announce figures for the first year of the 2025-26 Spending Review, before publishing the rest of the details next year.
The risk for Reeves is this: Having inherited an economy that was growing at a normal pace and is now beginning to slow, can she really justify raising taxes or tightening capital spending this fall?
While the UK economy faces clear challenges in the medium term, such as low investment and weak productivity, Labour has clearly inherited a sustained rebound from last year’s recession. This raises the stakes for the autumn budget.
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