The latest figures are a warning to Labour. The economy grew by just 0.1 per cent in the most recent quarter. The situation is worse than it looks because what matters is not just GDP, but with a growing population it is GDP per person that counts.
On this measure, the economy shrank by 0.1 per cent in the last quarter, and over the past year growth – adjusted for inflation and the rising population – has been zero.
These figures are Rachel Reeves’s true inheritance from the Conservatives, despite what Jeremy Hunt says about having left her a growing economy in good shape. Nothing could be further from the truth.
But she has done nothing to turn the figures around, and an awful lot to make them worse. She has undermined business confidence by warning for months of the painful measures she would have to take in the Budget. Then, when the Budget came, she imposed tax rises that business leaders thought were even worse for growth than they had expected.
She was listened to politely at last night’s Manson House dinner, but consolidating local government pension funds into a series of “megafunds” is a marginal long-term reform that does nothing for the here and now.
There was an air of “Crisis? What crisis?” about Reeves’s speech, as she pleaded with Donald Trump not to impose tariffs on British exports. I know James Callaghan never used those words, but Reeves might as well have said what he did say, which was: “I don’t think other people in the world would share the view there is mounting chaos.”
There were plenty of people in the Egyptian hall in the Mansion House last night who might share the view that the economy faces mounting threats – and that Reeves is making matters worse.
Her rise in employers’ national insurance has gone down badly. Business leaders think it is bad for jobs and bad for growth. The Office for Budget Responsibility disagrees with them, predicting that the effect of the tax rise will be offset by the investment measures in the Budget, but if the people who actually make the decisions that would deliver growth don’t buy it, the chancellor has a problem.
She has a credibility problem too, in that business leaders think she has gone back on her promises. All that “pro-business” rhetoric before the election set her up for a fall now that she is pursuing what they regard as anti-business policies in government. As for “no plans to raise taxes”, the hope of a new era of improving trust in politics seems to have been postponed.
Meanwhile, she and Keir Starmer simultaneously promise the impossible, namely the fastest economic growth in the G7. Any growth at all would be an improvement on the current zero, but setting an unrealistic target is guaranteed to undermine confidence in the government’s ability to achieve it.
The most important pro-growth policy that Reeves announced at the Mansion House was a stealth policy that dare not speak its name. “We will not be reversing Brexit or re-entering the single market or the customs union,” she said, “but we must reset our relationship.”
If we adhere to the maxim that we should “ignore everything before the ‘but’”, that was a potentially momentous statement.
It was certainly more than simply a repeat of the platitude that was Labour’s EU policy at the election, because it was backed up by some surprising words from Andrew Bailey, the governor of the Bank of England, in his speech last night.
He said: “I take no position on Brexit but I do have to point out consequences.” He duly pointed them out: namely that friction in goods trade with the EU has had a negative effect on Britain’s GDP. His conclusion? “We must be alert and welcome opportunities to rebuild relations with the European Union.”
I assume that this was a choreographed two-step with the chancellor, designed to nudge public opinion towards a bigger renegotiation of our terms of trade with the EU than has been acknowledged openly before.
The logic is hard to resist: if “hard” Brexit was bad for growth, then a “softer” deal would have been better. I wonder if elements of Theresa May’s Brexit compromise might be revisited. If so, with zero growth and President-Elect Trump breathing down our necks, it might be time to get on with it – urgently.