Labour has come into power and despite the headline quarterly figure showing slight growth, the economy is shrinking on a per capita basis.
It is not the news the chancellor was expecting, and it underscores the challenges she faces in delivering the government’s promise to turbo-charge growth.
There is an alternative version of this. A new government has come into power with a big growth agenda. That should have generated optimism among businesses and consumers.
August’s interest rate cut should have delivered another boost. Instead, confidence appears to be slumping.
Business groups say that uncertainty about tax rises may have “played a part” in the damp performance.
The chancellor says she is “not satisfied” by the latest results but is, once again, asking us to be patient with her. Hers is a long-term plan to fix the economy.
She is trying to heal chronic problems through reform and investment that might take time to pay dividends.
Today, she was trying to move the conversation away from tax hikes to reform and investment. In recent days, we’ve heard about big reforms to the pensions industry, and we are expecting more on planning.
Yesterday, in her Mansion House speech, the chancellor also hinted that she was eying up a closer relationship with Europe, saying that Brexit had thrown up “structural challenges”.
This feels like a moment, not only because of Reeves’ remarks but also because of an intervention from Andrew Bailey.
Officials have repeatedly shied away from talking about Brexit even though economists have repeatedly warned that the decision is weighing on the country’s growth potential, with the OBR forecasting a 4% hit over the next 15 years.
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Yesterday, however, the governor of the Bank of England ventured into the debate, saying he wanted to be honest about the “consequences” of Brexit. Change might be in the air.
Labour has previously ruled out rejoining the customs union or the single market, but closer links with Europe are an obvious area to explore for a chancellor looking for growth.
While the chancellor is looking for ways to unlock long-term growth, she is under pressure to meet the public’s expectations for improved public services now. That requires spending money, money which is harder to find when the economy isn’t growing.
Her efforts to plug that gap – a huge tax rise on business – could undermine her efforts to generate growth. Economic forecasters are warning that wages will suffer, unemployment could rise, and inflation could tick higher (albeit nowhere near the double-digit levels it hit at the end of 2022).
In fact, supermarkets, including Sainsbury’s and M&S, are already warning that prices might have to rise because of the employer’s national insurance increase.
The prospect of higher inflation is bad for living standards, which plummeted during the past two years as inflation ravaged the economy.
The Office for National Statistics (ONS) said that GDP per capita, which divides output by the population, fell in the third quarter by 0.1%, having recovered in the first half of the year.
It is still below the level it was at towards the end of 2019 meaning we still haven’t recovered from the cost of living crisis.