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Rachel Reeves has been accused of lacking in growth theory. Popularized the political scientist Ben AnsellCriticism refutes UK Chancellor for hitting for economic growth, while “empty” for its quest. It’s all pretty unfair. If you spend any time with treasury officers or Listen to Reeves aloneYou will know that it has a strategy and rests on three pillars: stability, investment and reforms.
The more appropriate criticism is that she was inadequately curious or prepared for the extent of economic shocks that she would face in the Government. This weakness led her to the exclusion of the most effective tools of taxation and then imposed harmful increase in taxes after insisting that she would not plan to do so.
A spring statement next week will set a stage to show Reeves its economic theories with respect to the new economic landscape. Just as the forecasts of the Budget Liability Office in October emphasized the weakness of public finances in the UK after Labour has been involved in direct challenges of public spending, the forecasts that follow Reeves’ statements will bring their misery.
The image of the title growth for 2025 will be drastically reduced. This is certainly reflected in mathematics, not leaking from the source near the chancellor. Economic weakness at the end of 2024 and the beginning of this year ensures that the CAP has to reduce the growth figure 2025. From 2 to 1.3 percent, even if it retains its view of the rest of the 2025 years unchanged. They are more likely to halve it to about 1 percent.
The reduction of the growth of “forecasts” could be a political title next Wednesday, but it is not important in the overall forecast of the OR. If there is no evidence of the opposite, the fiscal guard assumes that any bad news will be temporary and reversed in the future. Therefore, they are likely to increase its prospects for growth later in parliament to compensate for unexpected weakness at the end of 2024.
The main severe change in the forecast will be higher than the expected interest rates, increasing the cost of servicing the state debt by around £ 10 billion a year, or 0.3 percent of GDP. This is enough to delete the head that Reeves had in October against his main fiscal rule of balance of daily public spending with taxation by 2029-30.
The third key element of a probable forecasting forecast is that it will not take a complete assessment of the probable potential growth rate of the UK until the autumn budget, despite the terrible recent Productivity figures.
If the prognosis form slightly changes except the short -term decrease in growth and higher interest costs, what will the chancellor do? This helps to understand her stability, investment strategies and reforms.
Stability means that there will be no rewriting or transcribing fiscal rules. Will not be a special purpose vehicle for additional consumption, and the treasury recognizes that the UK does not have German healthy public finances And I can’t simply borrow more to resolve the challenge of the new world we live in. Anything that could destroy Reeves’ credibility.
The focus of investment work means that the Government will also protect its planned capital consumption program, although higher borrowing costs make it more expensive.
Reform is obvious in planning plans, disability fees, regulatory loads and supply long -term “patient” capital for infrastructure. Eye would be unreasonable to achieve them as improvements of growth, because they are far from fully formed and will only work over time.
Instead, Reeves will balance books with cuts for well -being Announced in Parliament on Tuesday, along with a slightly lower consumption of the department on the rest of the parliament than previously planned. The goal of the treasury here is to be boring.
The management of a stable ship in Choppy Waters is a good strategy so far, but it will fight for the survival of the other 2025. The economy in the UK will be recessed by the trade restrictions on President Donald Trump, which increase uncertainty and guess the potential of growth. Department plans, as it is currently established for later in the decade, is unlikely to be sufficient to meet public demands.
Government dedication to increasing the cost of defense to 2.5 percent of GDP by 2027, but it seems inadequate to secure British or European security. And the eyelash cannot delay an indefinitely less optimistic opinion on the long -term growth of productivity in the UK. That would undermine his prognosis of public finances. All this happens given that the Great Britain’s population requires more than the Government.
Reeves could be lucky, but at the moment it seems that the spring statement will be a moment of calm in the turbulent year.
