Rachel Reeves' route to recovery
Has some of the gloom about the UK economy been overdone? Rachel Reeves certainly thinks so. This morning's release by the Office for National Statistics suggests that GDP grew by 0.3 per cent in the second quarter of this year, a period which saw the introduction of the National Insurance rise and the imposition of tariffs by Donald Trump. That's down from 0.7 per cent in the first quarter but far ahead of City forecasts of 0.1 per cent.
These numbers mean that the UK remains the fastest-growing G7 economy so far this year – comfortably surpassing the US – and, as a Reeves aide points out, that per capita growth in 2025 has matched that in 2024 (a period that the Conservatives have long insisted represented a golden inheritance for Labour). 'Nigel Farage wants you to think that the economy's broken, Rachel rejects that premise,' they say of the government's main opponent.
To justify this argument, the Chancellor's team also cite consistent real wage growth, five interest-rate cuts – with mortgage rates below 5 per cent for the first time since Liz Truss's mini-Budget – and three trade deals: with the world's largest economy (the US), the world's fastest-growing economy (India) and the UK's largest trading partner (the EU). A daunting Budget – expected in November – lies ahead, but No 11 isn't regretting its decision to pour cold water on last week's projections that the Chancellor faces a £50bn black hole.
For Reeves, the task is clear: to maintain economic recovery and turn that into political recovery (the government's net approval rating this week fell to a record low of -55). 'In the same way she galvanised Whitehall around the growth agenda back in January, she wants to do the same again in the autumn,' an ally says. The Chancellor, who is preoccupied by the UK's dismal productivity performance since the 2008 crash, has ordered officials to draw up a second planning bill to speed up infrastructure projects such as airports, roads, green energy schemes and data centres.
Mindful of the UK's enduring regional imbalances, Reeves will also confirm the revival of Northern Powerhouse Rail, an east-west connection linking Liverpool to Hull (and potentially encompassing Leeds, her home constituency, Bradford and Sheffield). There is 'nothing progressive or Labour', the Chancellor has said privately, about 'one area of the country being easier to live in than others'.
Another theme on Reeves' mind this summer, as work begins on her conference speech, is 'contribution' (the Labour buzzword of the moment). An economy that is too unbalanced and unfair, she believes, means people are working hard but getting too little back. The challenge for Reeves is to find new ways of changing this – and ensuring that Labour wins some political credit.
This piece first appeared in the Morning Call newsletter; receive it every morning by subscribing on Substack here
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