Bailey pours cold water on Reeves's claim that economy ‘turned a corner'
Andrew Bailey has poured cold water on the Chancellor's claim that Britain's economy has turned a corner, warning that growth is slowing as high taxes bite.
The Governor of the Bank of England said the apparent growth spurt early this year was driven by temporary factors and was unlikely to be repeated. As a result, Britain's businesses must brace for a slowdown.
'We think the UK economy will grow at a more moderate pace over the coming quarters,' Mr Bailey told the annual conference of the British Chambers of Commerce (BCC).
'The unexpected strength in the first quarter was driven by strong outcomes for volatile components of GDP in the monthly figures for March.'
Mr Bailey said growth was boosted by a stamp duty holiday that expired in March and a rush to export to the US before Donald Trump's tariffs kicked in.
However, stamp duty has since risen along with other taxes, including Rachel Reeves's £25bn raid on employers' National Insurance contributions, and Mr Bailey said there were clear signs the economy was weakening as a result.
The Governor added that he was 'beginning to hear a bit more evidence of adjustments through pay and employment' in response to higher National Insurance. He said there was 'softening of the labour market'.
The comments are a blow to Rachel Reeves, who claimed in May that Britain's economy was 'beginning to turn a corner' after official figures showed GDP grew by 0.7pc in the first three months of the year. The Chancellor has also repeatedly claimed that Labour has 'fixed the foundations' of the economy.
Mr Bailey pointed out that the economy shrank by 0.3pc in April, which was 'consistent' with the idea that the growth spurt seen at the start of the year was only temporary.
It echoes comments he made earlier in the week in which he warned that there was clear evidence of higher taxes hitting employment.
The Governor added that economic growth was 'the only source of sustainable improvements to the standard of living'. Raising the growth rate of the UK economy was 'one of the most important challenges facing us as a society today', he said.
The comments come after Shevaun Haviland, the BCC chief, pleaded with the Chancellor not to raise taxes again in the autumn, amid growing fears that Ms Reeves will be forced to come back for more.
Ms Haviland said on Thursday: 'Taxing business is just counterproductive. The Chancellor needs to drive revenue from economic growth, not from taxation. Taxation kills business growth.
'We also go to her [Reeves] with ideas, with solutions, with opportunities and that's where we want to see her focus and for her taxing business further for the economy is going to have the opposite effect.'
Sir Keir Starmer addressed business leaders at the start of the BCC conference, acknowledging that Labour's tax raid on companies had been painful. The Prime Minister said he had 'asked a lot' of businesses this year 'as we've had to fix the foundations of this economy'.
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