Today, the Bank of England confirmed what has been apparent for months: that Rachel Reeves’s Budget was a disaster.
The Bank has halved its 2025 growth forecast to 0.75 per cent and cut interest rates by 0.25 per cent to bring them down to 4.5 per cent. The Chancellor’s choice to increase employers’ national insurance contributions was fingered as hitting jobs and prices more than previous thought, with unemployment expected to rise to 4.8 per cent – 0.5 per cent more than previously expected.
The Monetary Policy Committee suggested that the economy shrank around 0.1 per cent as a consequence of Reeves’s Budget and would barely grew in the first quarter of this year. Inflation is also expected to hit 3.7 per cent by the end of the year due to higher energy bills. At every turn, it was bad news for the Chancellor: stagflation, unemployment, trade wars, and more.
This is a world away from the broad sunlit uplands of growth that Reeves was scoping last week – a reminder that her pandering to Yimby fantasies was a desperate attempt to distract from the weakness of her own position, not a sign that our fifteen years of hurt will be over any time soon. As with Keir Starmer’s nuclear posturing, I will only believe it once an SMR is plonked in Croxley Green.
Yes, Labour will hope this small rate cut might provide a boost to the Chancellor’s growth quest, especially if it is followed by further cuts later in the year. But the Bank has joined a string of independent forecasters in downgrading growth expectations. This makes it even more likely that the OBR will similarly slash its expectations when it pushes its next assessment in March.
Weaker-than-expected growth, shattered confidence, ballooning unemployment, higher borrowing costs: all make it darn-near certain that the Office for Budget Responsibility will announce Reeves is set to break her fiscal rules unless further tax hikes or public spending cuts are announced. The Times expects these to be pencilled in for later this Parliament, in Jeremy Hunt tradition.
It also suggests that Reeves will struggle to get the OBR to include her supply-side measures and Liz Kendall’s welfare reforms include in the forecast due to uncertainty about their impact. So the outlook for the Chancellor remains bleak – not only in terms of the grim economic picture she surveys and helped engender, but because she is increasing deadweight within the Government.
One can’t open a window into men’s souls. But I imagine most Labour MPs did not go into politics to implement Osbornomics at the behest of the bond markets. Nor did they do so to maintain the two-child benefit limit and defund grannies to make a chum of the Prime Minister feel warm and decolonial. As the picture gets worse, the chances of Reeves being Starmer’s sacrificial lamb only rise.
