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Roula Khalaf, editor of FT, chooses her favorite story in this weekly newsletter.
The writer is a former finance minister
Chancellor Rachel Reeves has made it clear this week to change the story of the UK economy and the Starmer Government’s abilities to help strengthen it. This was necessary. The negative background mood, after hopes, appeared in front of the election and immediately after that the October budget returned to one of the repetitive disappointment, low expectations and dismay of the apparent lack of narrative.
The UK has re -entered a period near zero economic growth. Confidence in business confidence, caused by the budget, is complex with concern about increasing the yield of global bonds and restrictions that set it on the ability of the Government to spend it, to borrow.
In her speech, Reeves acknowledged business costs from increasing national insurance – and again tried to explain that she thought it needed to control finances. But as she turned to talk about the foreign supply, the picture became much more hope.
Instead of becoming excessively stressful because of the management of demand, I believe this focus on the side of the offer is correct. First, since much of the demand will be determined by the Bank of England: if interest rates are reduced in the way many are forecast, it should be an important initiator. So, Reeves would not want to take steps to make up for the opportunity too much – not at least because it would probably help to restrain the bond of bond in the UK.
Second, as ministers are eager to tell everyone who will listen, the government is limited by their own fiscal rules, the first of which limits current consumption. If he wants to avoid the further increase in taxes, he will have to adhere to them – or something close to them.
Third – and this is especially important – the Great Britain’s problem that returns to the 2008 financial crisis, and before, it was always foreign supply. Namely, our terrible productivity and our weak private and public investments. From the crisis, a weak average growth of 1.5 percent is almost completely encouraged by a very strong growth growth. The growth of productivity remained extremely weak. If we have a stronger growth, and we are less prone to inflation, we need more investment and greater productivity-this is really so simple.
So Reeves must provide a government 10-year infrastructure strategy is the central stage from now.
The chancellor spoke correctly about excessive regulation, planning blocks and lack of commitment to investment projects that increase growth. She promised the support of a large dispening of projects to resolve permanent delays and obstacles to Infrastructure, including the OX-CAM project, support for the third runway in Heathrow, as well as numerous schemes in northern England.
What was missing was the frame. In her narrative, there was no room for institutions that would be key to delivering transparent, highly multiple investments-they are not really on the move yet. But this emphasis will be required if the government wants to instill confidence in investors.
Officeers always like to announce great investments that attract attention, even if, like Spreading HeathrowThey are controversial. Very often, however, this is not accompanied by fresh government capital and are announced on the basis of “Believe us” in terms of real, permanent benefits.
In this, Reeves is no exception. She quoted Frontier Economics research suggesting that a third runway would have positive multiplicants outside the London area – this should become part of the frame for each major initiative. But this must be done systematically, especially since the government will need to observe its second fiscal rule and borrow to invest. Without such a frame, “believe us” may not get such a positive answer from the gilded or capital market.
The new national body to transform infrastructure and services will not be established by April. But this subject, together with the national audit office and others, will be absolutely fundamental to stimulating business, within and outside the UK, to increase the potential of the growth of the economy with investment. I am surprised that the chancellor decided not to talk about it: in fact, it will add and support the Treasury Division aimed at growth that both Reeves and Sir Keir Starmer promised to establish.
In this spirit, I hope that Reeves will strengthen anything to be completely transparent in terms of investment projects that will have positive multiples. Since this is the path to indirectly increase the demand for the economy, releasing longer long -lasting spirits of animals in business and consumers.
