Economic growth revised to zero, stubbornly high inflation, and warnings of job losses on the horizon. After less than six months in office, a narrative is taking hold that Keir Starmer’s government is fumbling his number one mission to reboot Britain’s economy.
On the eve of the prime minister’s first Christmas in Downing Street, the early indicators certainly aren’t looking good. After growth was revised down from 0.1% to zero in the third quarter, and with the Bank of England forecasting more of the same in the fourth quarter, at best the UK economy has gone sideways since Labour’s election landslide in July.
The Tory argument is that Rachel Reeves has “killed, plucked and cooked the UK economic goose” just in time for Christmas, having crushed consumer and business confidence through a combination of dour rhetoric and large tax rises.
Certainly the chancellor’s downbeat messaging – deployed to hammer the Conservatives into electoral oblivion and emphasise the need for change – has had an impact.
Surveys of consumer confidence fell sharply late in the summer as Reeves rolled the pitch for the biggest tax-raising budget in decades, in a period when Labour expended much of its early political capital by cutting winter fuel payments and sticking to the two-child limit on benefits.
Despite a cloying charm offensive with business before the election, Labour has spent recent months trying to reassure its new friends that its “pro-business” promise wasn’t just an empty Blairite soundbite, after Reeves increased employer national insurance contributions by £25bn in the budget.
But while Labour’s return to power hasn’t been entirely smooth, it would be hyperbolic to blame Britain’s recent run of recent disappointing data solely on a government elected less than six months ago. It will take years to turn around an economy that has been misfiring for the best part of the past decade. It is a message Reeves is clearly leaning into, having told the Guardian last week she won’t “gaslight” voters about the speed of the turnaround.
The economic picture is more complex and nuanced than much of the coverage suggests.
The UK recording the fastest growth in the G7 in the first half of this year was partly influenced by the snapback from a shallow recession in the second half of 2023, at the peak of the cost of living crisis. Most economists and business leaders did not expect higher levels of growth to sustainably persist, especially while public services remained under pressure. The Bank of England warned as far back as February that inflation would return above its 2% target in the second half of 2024.
Analysts at the consultancy Capital Economics highlight that the third-quarter growth downgrade was mainly driven by international factors – including a drag from net trade – rather than the areas of the economy Labour is blamed for hitting. Consumer spending still grew by a decent 0.5%, while business investment was revised up from growth of 1.2% to 1.9%.
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However, the narrative that Labour has goosed the economy is a helpful one for Starmer’s critics. This includes business leaders pushing hard to gain concessions on tax and reforms to workers’ rights, as well as the Tories, as they hope to repair a shattered reputation for economic management.
When the shadow business secretary, Andrew Griffith, says Labour must “urgently change course”, it’s not clear exactly what he has in mind. It also doesn’t take much to recall the chaotic final years of the last government, when the sheer volume of repeated course changes left Britain reeling: including five government posts for Griffith himself in only two years.
Few voters would agree that Britain was a land of milk and honey before July, when the Tories were lurching from one existential crisis to the next. Cutting tens of billions of pounds in taxes while public services crumbled meant the country was on an unsustainable course – for the resilience of the public finances, the needs of the nation, and the economic outlook.
That isn’t to say 2025 won’t be a daunting challenge for Labour. With stickier inflation and interest rates, weaker growth in the UK’s largest European trading partners, and the prospect of Donald Trump reigniting global trade wars, the new government will remain under economic and political pressure.