The British economy will only grow by 1% this year, half the rate previously anticipated, Treasury chief Rachel Reeves conceded Wednesday in a statement to lawmakers about the state of the public finances that also saw her flesh out plans to boost defense spending.
Against the backdrop of sluggish economic growth that she blamed on a volatile international environment but which critics say she is largely responsible for, Reeves unveiled measures intended to meet her self-imposed budget rules.
With growth in 2025 lower than anticipated and debt interest repayments higher, there’s a 14 billion-pound ($18 billion) hole in the government’s revenue expectations, which Reeves has sought to fill largely with welfare cuts that has caused widespread unease within Reeves’ governing Labour Party amid concerns they will push 250,000 people, including 50,000 children, into poverty. She also announced measures to rein in tax avoidance and tax evasion, and by lowering the day-to-day costs of running government.
Reeves’ spring statement to Parliament was made in response to what was a fairly gloomy near-term economic assessment by the government’s independent forecaster, the Office for Budget Responsibility.
Longer-term, the agency’s forecasts were a bit more positive for the government with housing starts on course to meet a four-decade high following widespread planning reforms.
While saying she was not satisfied by the 2025 growth forecast, Reeves was able to point to higher growth forecasts for the years ahead which if they prove accurate, should ease the pressure on her to lower spending or increase taxes in the remaining years of this Parliament, which can run until the middle of 2029.
“This isn’t just about lines on a graph,” Reeves said. “This is about improving people’s lives. Working people are still feeling the pinch after a cost of living crisis that saw prices spiral.”
However, the agency said the outlook looks “risky,” particularly on the international front. It highlighted risks posed by the prospect of a global trade war in light of the tariff policies being enacted by the Trump administration.
Reflecting geopolitical turbulence caused by the return of U.S. President Donald Trump, Reeves told lawmakers that a “more insecure world” requires a greater focus on national security.
As a result, she confirmed a 2.2 billion-pound ($2.9 billion) increase in defense spending, which Prime Minister Keir Starmer has said is the biggest increase since the end of the Cold War.
“This additional investment is not just about increasing our national security but increasing our economic security, too,” Reeves said. “As defense spending rises, I want the whole country to feel the benefits.”
The British economy, the sixth-largest in the world, eked out modest growth of 0.1% in the fourth quarter, a hugely disappointing outcome for the new Labour government, which has made boosting growth its number one economic policy. Since the global financial crisis in 2008-2009, the British economy’s growth performance has been notably below its long-term average.
Critics say Reeves is partly responsible for gloomy economic news since Labour returned to power in July after 14 years, because she was overly downbeat when taking on her role and has since increased taxes, particularly on businesses.
“She is the architect of her own misfortune,” said Mel Stride, the economy spokesperson for the main opposition Conservative Party.
Reeves received some welcome news Wednesday, with official figures showing that price rises in the U.K. moderated by more than anticipated in February. The Office for National Statistics said consumer price inflation fell to 2.8% from 3% the previous month. Most analysts had expected a more modest decline to 2.9%.
Though inflation is still higher than the Bank of England’s 2% target, Reeves will likely hope that easing price pressures will lead to bigger interest rate reductions than predicted. That would lower the interest payments the government pays on its debt, potentially freeing up money for the government to spend on public services.
Last week, the bank kept its main U.K. interest rate unchanged at 4.50% even though the economy is barely growing and the nation faces more uncertainty
The U.K. Treasury chief says the economy will only grow by 1% this year, half the rate previously anticipated.
LONDON – The British economy will only grow by 1% this year, half the rate previously anticipated, Treasury chief Rachel Reeves conceded Wednesday in a statement to lawmakers about the state of the public finances that also saw her flesh out plans to boost defense spending.
Against the backdrop of sluggish economic growth that she blamed on a volatile international environment but which critics say she is largely responsible for, Reeves unveiled measures intended to meet her self-imposed budget rules.
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With growth in 2025 lower than anticipated and debt interest repayments higher, there’s a 14 billion-pound ($18 billion) hole in the government’s revenue expectations, which Reeves has sought to fill largely with welfare cuts that has caused widespread unease within Reeves’ governing Labour Party amid concerns they will push 250,000 people, including 50,000 children, into poverty. She also announced measures to rein in tax avoidance and tax evasion, and by lowering the day-to-day costs of running government.
Reeves’ spring statement to Parliament was made in response to what was a fairly gloomy near-term economic assessment by the government’s independent forecaster, the Office for Budget Responsibility.
Longer-term, the agency’s forecasts were a bit more positive for the government with housing starts on course to meet a four-decade high following widespread planning reforms.
While saying she was not satisfied by the 2025 growth forecast, Reeves was able to point to higher growth forecasts for the years ahead which if they prove accurate, should ease the pressure on her to lower spending or increase taxes in the remaining years of this Parliament, which can run until the middle of 2029.
“This isn’t just about lines on a graph,” Reeves said. “This is about improving people’s lives. Working people are still feeling the pinch after a cost of living crisis that saw prices spiral.”
However, the agency said the outlook looks “risky,” particularly on the international front. It highlighted risks posed by the prospect of a global trade war in light of the tariff policies being enacted by the Trump administration.
Reflecting geopolitical turbulence caused by the return of U.S. President Donald Trump, Reeves told lawmakers that a “more insecure world” requires a greater focus on national security.
As a result, she confirmed a 2.2 billion-pound ($2.9 billion) increase in defense spending, which Prime Minister Keir Starmer has said is the biggest increase since the end of the Cold War.
“This additional investment is not just about increasing our national security but increasing our economic security, too,” Reeves said. “As defense spending rises, I want the whole country to feel the benefits.”
The British economy, the sixth-largest in the world, eked out modest growth of 0.1% in the fourth quarter, a hugely disappointing outcome for the new Labour government, which has made boosting growth its number one economic policy. Since the global financial crisis in 2008-2009, the British economy’s growth performance has been notably below its long-term average.
Critics say Reeves is partly responsible for gloomy economic news since Labour returned to power in July after 14 years, because she was overly downbeat when taking on her role and has since increased taxes, particularly on businesses.
“She is the architect of her own misfortune,” said Mel Stride, the economy spokesperson for the main opposition Conservative Party.
Reeves received some welcome news Wednesday, with official figures showing that price rises in the U.K. moderated by more than anticipated in February. The Office for National Statistics said consumer price inflation fell to 2.8% from 3% the previous month. Most analysts had expected a more modest decline to 2.9%.
Though inflation is still higher than the Bank of England’s 2% target, Reeves will likely hope that easing price pressures will lead to bigger interest rate reductions than predicted. That would lower the interest payments the government pays on its debt, potentially freeing up money for the government to spend on public services.
Last week, the bank kept its main U.K. interest rate unchanged at 4.50% even though the economy is barely growing and the nation faces more uncertainty