Rachel Reeves faces warnings over economic growth prospects
Rachel Reeves has been cautioned that tax hikes and spending cuts could hinder the UK economy over the next two years, reports BritPanorama.
Chancellor Reeves has received alerts that economic growth will be lackluster and that inflation will remain the highest among G7 countries in 2025. Current forecasts indicate that UK growth will decelerate from 1.4% this year to 1.2% next year before recovering slightly to 1.3% by 2027.
The Organisation for Economic Co-operation and Development (OECD) has also projected that unemployment could reach 5%, influenced by new business taxes that could deter job creation. This bleak outlook has the potential to affect both consumer confidence and spending.
Moreover, a recent poll revealed that only 10% of respondents trust the Labour Party to manage the economy effectively, a significant political blow for Reeves when compared to her predecessor, Liz Truss.
The OECD’s report highlights that previous adjustments in taxes and expenditures have negatively impacted household disposable income and consumption. Meanwhile, the government office responsible for budget oversight has upgraded its 2025 growth forecast, although it has downgraded projections for subsequent years.
Weakness in the working-age population, partially attributed to decreased immigration, is anticipated to further drag down the economy. Evaluations by the OECD indicate a more pessimistic view compared to the independent Office for Budget Responsibility.
With a £26 billion increase in taxes, which includes freezing tax thresholds affecting 1.7 million taxpayers, Reeves faces criticism. Tory leader Kemi Badenoch has accused her of misrepresenting public finances to justify these hikes, which have pushed the overall tax burden to the highest level since 1948.
Furthermore, Britain’s inflation rate is projected to be the highest among advanced economies in the G7 at 3.5% this year, with a slight decrease to 2.5% expected in 2026. Although this remains the second-highest figure, it is hoped that lower inflation figures and marginal improvements in global trade will offer some economic relief.
In a response to the OECD’s findings, Reeves asserted, “Last week, my Budget cut waiting lists, cut borrowing and debt, and cut the cost of living. Less than a week later, the OECD has upgraded our growth and cut its forecast for inflation next year.” She claimed that the Budget decisions made will help ease the cost of living by reducing inflation by 0.4 percentage points.
However, Shadow Chancellor Sir Mel Stride countered this rebuttal, stating, “The OECD is clear: unemployment is set to rise, driven in part by Labour’s Jobs Tax, and inflation will stay above target for the remainder of their forecast.” He criticized Reeves’s promises of growth, asserting that her policies are detrimental to work, business, and investment.
The landscape of the UK economy continues to evolve under scrutiny as policymakers navigate these challenging economic forecasts.
The interplay between fiscal policy and economic outcomes remains critical as the UK seeks to balance inflation management with sustainable growth, an issue that will likely dominate the political discourse in the coming months.
