Tag: Rachel Reeves

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UK GDP 0.3% for Q2 – still anaemic – despite the sunny weather – August 2025

Not so sunny! UK GDP figures anaemic

The UK economy (GDP) grew by 0.3% in the second quarter of 2025, outperforming forecasts of just 0.1% growth (not difficult).

This marks a slowdown from the robust 0.7% expansion seen in Q1, but June’s rebound helped offset weaker activity in April and May 2025.

📊 Key Highlights:

  • Monthly growth: +0.4% in June, following a slight dip in May.
  • Sector drivers: Services led the charge, with gains in computer programming, health, vehicle leasing, and scientific R&D. Construction also rose, while production dipped slightly.
  • Updated data: April’s contraction was revised to show a milder decline than previously estimated.

💬 Expert commentary:

  • Economists caution that the momentum may not last, citing a softening labour market and inflationary pressures.
  • The Bank of England recently cut interest rates to 4%, aiming to balance inflation control with economic support.
  • Chancellor Rachel Reeves welcomed the figures but stressed the need for deeper reform to unlock long-term growth.

Despite the sunny headline, analysts remain wary of headwinds from global weakness, tax changes, and cautious consumer sentiment.

The outlook for Q3 is more muted, with hopes of a sharp rebound likely to be tempered.

Data from the ONS

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UK economy shrank in April 2025

UK flag on a squeezed bottle

The UK economy contracted by 0.3% in April 2025, a sharper decline than the 0.1% forecast by economists, according to the Office for National Statistics (ONS).

The unexpected downturn has raised fresh concerns about the country’s economic resilience amid rising costs and global trade tensions.

April’s contraction was driven by a combination of domestic and international pressures. A significant rise in employers’ National Insurance contributions, coupled with increases in water, energy, and council tax bills, placed added pressure on businesses and households.

Simultaneously, newly imposed U.S. tariffs, introduced by President Trump, led to the steepest monthly drop in UK exports to the United States on record.

Services and manufacturing, which together form the backbone of the UK economy, both saw declines.

Legal and real estate sectors were particularly affected, following a surge in house sales in March 2025 ahead of stamp duty changes. Car manufacturing also faltered after a strong first quarter.

Despite the monthly setback, UK GDP still grew by 0.7% over the three months to April 2025, suggesting some economic activity may have been pulled forward earlier in the year.

Chancellor Rachel Reeves reportedly acknowledged the figures were ‘clearly disappointing’ but reaffirmed her commitment to long-term growth through strategic investments in infrastructure, housing, and energy.

While April’s figures may not signal an immediate crisis, they underscore the fragility of the UK’s recovery.

With UK inflation still above target and interest rates elevated, the UK government faces a delicate balancing act to sustain momentum without stifling growth.

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UK government borrowing higher than expected in February 2025

UK borrowing up!

In February 2025, UK government borrowing reached £10.7 billion, significantly exceeding the £6.5 billion forecast by the Office for Budget Responsibility (OBR)

This marks the fourth-highest borrowing figure for February since records began in 1993. The unexpected rise in borrowing has intensified pressure on Chancellor Rachel Reeves ahead of her upcoming Spring Statement.

The increase in borrowing is attributed to higher public sector spending, which totaled £93 billion for the month, driven by social benefits and investment expenditures.

Meanwhile, government receipts, primarily from taxes, rose to £87.7 billion but failed to offset the spending surge.

Over the financial year to date, borrowing has climbed to £132.2 billion, surpassing the OBR’s earlier projection of £127.5 billion for the entire fiscal year.

Economists warn that the higher-than-expected borrowing could challenge the Chancellor’s fiscal rules, which aim to reduce debt as a share of GDP by 2029/30.

With limited options, Reeves faces tough decisions, including potential spending cuts and tax adjustments, to maintain fiscal discipline.

The borrowing figures underscore the delicate balance between managing public finances and addressing economic pressures.

As the Spring Statement approaches, all eyes are on the Chancellor’s strategy to navigate these challenges while maintaining economic stability.

The Chancellor has allowed herself to be backed into a corner.

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UK Government finances in surplus but…

UK finances

The UK government has announced a significant budget surplus for January 2025, marking a notable achievement in its fiscal management

The surplus, which is the difference between what the government spends and the tax it takes in, amounted to £15.4 billion. This figure represents the highest level for the month of January since records began over three decades ago.

However, despite this impressive surplus, the figure fell short of the Office for Budget Responsibility’s (OBR) forecast of £20.5 billion. The shortfall has increased pressure on Chancellor Rachel Reeves to meet her self-imposed fiscal rules.

The OBR, which monitors the government’s spending plans and performance, will release its latest outlook for the UK economy and public finances on 26 March 2025.

The surplus was driven by a surge in tax receipts, particularly from self-assessed taxes, which are typically higher in January compared to other months. However, the lower-than-expected tax receipts suggest underlying weaknesses in the UK economy.

The Office for National Statistics (ONS) reported that borrowing in the financial year to January 2025 was £118.2 billion, which is £11.6 billion more than at the same point last year.

The government now faces the challenge of balancing its fiscal rules with the need to support economic growth. Weak economic growth and higher borrowing costs have reduced the headroom available to the Chancellor, making it more difficult to meet her fiscal targets.

Economists have suggested that Reeves may need to consider raising taxes or cutting public spending to stay within her fiscal rules.

As the UK economy continues to navigate these challenges, the government’s ability to manage its finances effectively will be crucial in maintaining credibility with financial markets and ensuring long-term economic stability.

The upcoming Spring Forecast will be a critical moment for the UK Chancellor to outline her plans and address the fiscal challenges ahead

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EEK! Only 0.1% growth for the UK

Tepid UK GDP

The U.K. economy grew by just 0.1% in the fourth quarter according to a preliminary estimate from the U.K.’s Office for National Statistics (ONS) released Thursday 13th February 2025.

Economists had expected the country’s GDP to contract by 0.1% over the period.

The services and construction sectors contributed to the better-than-expected performance in the economy, up 0.2% and 0.5% respectively, but production fell by 0.8%, according to the ONS.

Sluggish growth

The UK economy recorded zero growth in the third quarter, accompanied by lacklustre monthly GDP. There was a 0.1% contraction in October 2024 followed by a 0.1% expansion in November 2024.

On Thursday 13th February 2025, the ONS that growth had picked up in December, with an estimated 0.4% month-on-month expansion attributed to growth in and production.

Sluggish and a recent decline in inflation prompted the Bank of England to implement its interest rate cut of the year last week, reducing the benchmark rate to 4.5%.

The central bank indicated that additional rate cuts are anticipated as inflationary pressures diminish. However, it noted that higher energy costs and regulated price changes are projected to increase headline inflation to 3.7% in the third quarter of 2025.

Pressure

The expectation is that UK underlying inflationary pressures will continue to decline. The Bank of England expects the inflation rate to return to its 2% target by 2027.

The bank also halved the U.K.’s economic growth forecast from 1.5% to 0.75% this year.

Poor economic performance will add additional pressure on U.K. Chancellor Rachel Reeves, whose fiscal plans have been criticised for increasing the tax burden on businesses.

Critics say the plans, which increase the amount that employers pay out in National Insurance (NI) contributions as well as a hike to the national minimum wage, could harm investment, jobs and growth. This appears to be coming to fruition.

Chancellor Reeves defended her ‘dire’ Autumn Budget reportedly saying the £40 billion of tax rises were needed to fund public spending and that she is prioritising economic growth.

A poor start – 0.1% is an anaemic growth percentage!

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UK eeks out tepid 0.1% growth

UK growth

The UK economy grew for the first time in three months – but only just.

The tiny growth was driven in part by an increase in trade for pubs, restaurants, and the construction industry.

Official figures showed an expansion of 0.1% after the economy contracted in each of the two months.

The return to growth will be a welcome sign for the government after recent turbulence in financial markets sent borrowing costs to their highest level in several years and caused the value of the pound to fall.

However, the figure was lower than economists had expected, with declines in manufacturing and business rentals and leasing.

Chancellor Rachel Reeves reiterated her pledge to go ‘further and faster’ to improve economic growth in order to boost living standards, declaring it was the ” number one priority” for the government.

‘That means generating investment, driving reform, and a relentless commitment to rooting out waste in public spending,’ she reportedly said. She also repeated her accusation of blame at the Tories for the low growth. The chancellor surely cannot expect to continue escaping accountability with the blame game tactic for much longer.

However, with tax rises set to come into effect in April 2025, businesses have repeatedly warned that the extra costs faced through in National Insurance, as well as the minimum wage, could impact the economy to grow, with employers expecting to have less cash to give pay rises and create new jobs.

In the three months to November, the economy is estimated to have shown no growth, as calculated by the Office for National Statistics (ONS).

UK November 2024 0.1% growth

UK November 2024 0.1% growth

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Has ‘Rachel from accounts’ messed up the UK economy?

UK budget

The pound has continued to fall after UK government borrowing costs rose and concerns grew about public finances

Sterling dropped as UK 10-year borrowing costs surged to their highest level since the 2008 financial crisis when bank borrowing virtually ground to a halt.

Economists have warned the rising costs could lead to further tax rises or cuts to spending plans as the government tries to meet its self-imposed borrowing target.

The UK government creates its own financial crisis as it messes up its ‘go for growth’ policy

The UK economy is currently grappling with a series of financial challenges that have led to a significant fall in the value of the pound, soaring treasury yields, and high borrowing costs.

These developments have been largely influenced by the recent budget announced by Chancellor Rachel Reeves, which has sparked concerns among investors and economists alike.

Downward trajectory

The pound has been on a downward trajectory, recently hitting its lowest level since November 2023. Traders are betting on further declines, with some predicting the pound could fall as low as $1.12

This decline is partly due to the rising cost of government borrowing, which has surged to levels not seen since the 2008 financial crisis. The yield on 10-year gilts has climbed to 4.8%, while the yield on 30-year gilts has reached 5.34%, the highest in 27 years.

Recent UK budget

The recent budget has played a crucial role in these developments. Announced in October 2024, the budget included significant tax hikes and increased spending, leading to a substantial rise in government borrowing.

The budget deficit is expected to reach 4.5% of GDP this fiscal year, pushing the overall government debt close to 100% of GDP. This increase in borrowing has led to a higher supply of government debt, which in turn has driven down the price of bonds and pushed up yields.

Higher yields

Higher yields mean that the government has to pay more to borrow money, which has significant implications for its fiscal policy. The rising cost of servicing government debt could force the government to either raise taxes further or cut spending to meet its fiscal rules.

This situation is reminiscent of the market turmoil following Liz Truss’s mini budget in 2022, which also led to a sharp rise in borrowing costs and a fall in the value of the pound.

The impact of these developments extends beyond the government. Higher borrowing costs are likely to affect households and businesses as well.

Economic growth at risk

Mortgage rates, which are influenced by government bond yields, are expected to remain high, putting additional pressure on homeowners. Businesses, on the other hand, may face higher costs of borrowing, which could lead to reduced investment and slower economic growth.

The UK is facing a challenging economic environment characterized by a falling pound, high treasury yields, and rising borrowing costs.

The recent budget has exacerbated these issues, leading to increased government borrowing and higher debt levels. As the government navigates these challenges, it will need to carefully balance its fiscal policies to avoid further economic instability and ensure sustainable growth and not more ‘unfunded’ debt.

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UK economy had zero growth between July and September 2024 – bad to worse

UK economic data

Revised official figures indicate that the UK economy was weaker than initially estimated between July and September 2024. The economy experienced zero growth in these three months, down from an earlier estimate of 0.1%.

UK Chancellor, Rachel Reeves reportedly stated that the challenge to fix the economy “after 15 years of neglect is huge,” and October’s Budget would “deliver sustainable long-term growth, putting more money in people’s pockets.”

However, one of the UK’s leading business groups, the CBI, said its latest company survey suggested “the economy is headed for the worst of all worlds.”

The downward revisions will be a setback for Labour, which has prioritised boosting economic growth. It has promised to deliver the highest sustained economic growth in the G7 group of wealthy nations.

Separate figures released last week showed that inflation, the rate at which prices increase over time, is rising again at its fastest pace since March 2024. But it is close to the Bank of England target of 2%

The Bank of England voted to hold interest rates at the last meeting, stating that it believed the UK economy had performed worse than expected, with no growth between October and December 2024.

Businesses have warned that measures announced in October’s Budget, including a rise in employer national insurance and a higher minimum wage, could force them to raise prices and reduce the number new jobs.

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There is a UK budget coming and the new chancellor reportedly needs to raise £20 billion – to fill a ‘black hole’ – how can this be done without upsetting the electorate?

Tax black hole

Tax Reforms

Increase in VAT: Adjusting the Value Added Tax (VAT) rate could generate substantial revenue.

Pension Tax Relief: Limiting pension tax relief to the basic rate of income tax could raise around £15 billion per year. Pension tax relief raid.

Windfall Tax: Increasing the windfall tax on the profits of oil and gas companies could also contribute significantly.

General Tax Increases: N.I., Income Tax, Capital Gains Tax, Inheritance Tax,

Public Sector Efficiency

Improving Productivity: Enhancing public sector productivity by just 5% could deliver up to £20 billion in benefits annually.

New Taxes or Levies

Green Taxes: Introducing or increasing taxes on carbon emissions and other environmental levies could help raise funds while promoting sustainability.

Digital Services Tax: Expanding the scope of the digital services tax to cover more online businesses could also be a potential revenue source.

Electric vehicle tax: new tax bands for electric cars

Spending Cuts

Reducing Public Expenditure: Identifying and cutting down on non-essential public spending could help balance the budget.

Economic Growth

Stimulating Growth: Policies aimed at boosting economic growth, such as investing in infrastructure and innovation, could increase tax revenues indirectly by expanding the tax base. But this will take time to fully materialise.

Each of these measures comes with its own set of challenges and implications, so the government would need to carefully consider the economic and social impacts before implementation.

Black hole?

The Chancellor has recently pointed to a ‘black hole’ in the public finances, referencing the recent uncovering of an ‘unbudgeted’ £22bn overspend in the current tax year following her tenure commencement at No. 11 Downing Street in July.

The reality of this newfound deficit is subject to debate. However, given that the Chancellor has ruled out the possibility of borrowing for day-to-day expenses, it seems she very likely she might be compelled to raise taxes to offset these expenditures.

N.I. and Pension raid?

In its last year, the Conservative government cut taxes by £20 billion by reducing the National Insurance rate. Reversing this cut would be a direct way to increase revenue, taking us back to the financial situation before last November.

Currently, many people receive a 40% tax relief on pension contributions but are taxed at 20% when they withdraw. This ‘inconsistency’ could easily become a target for the Chancellor.

Additionally, employers’ National Insurance contributions are not applied to pension contributions or withdrawals, and individuals can even take a tax-free lump sum from their pension after having received tax relief on their contributions.

Understanding the complexities is not necessary to see that a chancellor in search of extra tax revenue may consider pension contributions as a significant source of additional income.

The UK budget is due on: 30th October 2024 – let’s see just by how much UK taxes are increased – because they will be.