3 days ago
Rachel Reeves has consigned Britain to a doom loop
Britain's is growing, albeit sluggishly. Figures just released by the Office for National Statistics (ONS) show the economy grew by just 0.3 per cent in the second quarter of the year – a sharp slowdown from the first three months, when growth was 0.7 per cent.
'The economy was weak across April and May,' the ONS said, blaming consumers and businesses racing to beat tariffs and stamp duty by bringing activity forward. There was, however, a stronger recovery in June, with the economy expanding by 0.4 per cent.
Between April and June as a whole, services drove most of the growth, with particular strength in computer programming, healthcare and vehicle leasing. Construction also expanded, while production contracted. On a per capita basis, growth was a meagre 0.2 per cent.
While these figures are weak enough to be troubling for the Chancellor, Reeves will take some comfort from June's stronger-than-expected performance. They cast doubt on last week's claim by the National Institute of Economic and Social Research (NIESR) of a £50 billion fiscal black hole she must fill this Autumn. Even so, there will still be a hole – likely in the tens of billions – that, unless she is willing to shrink the bloated state, will make tax rises inevitable.
The figures confirm that the G7-leading growth we saw in the first quarter was 'something of a mirage,' as Lindsay James, investment strategist at Quilter, put it. We have now slipped back to the 'anaemic growth' Britain is accustomed to. Worse still, the dismal jobs data released on Tuesday suggest even this sluggish 0.3 per cent pace will be hard to sustain in the second half of the year.
If the fiscal crisis forces the Chancellor into hefty tax rises, the chances of reigniting growth will recede further. Higher taxes will weigh on business investment and household spending alike, deepening the stagnation. Without a credible plan to spur productivity, the risk is the cycle of crisis just spins faster: weak growth begets higher taxes, which in turn choke us. The doom loop grinds on.
