Chancellor Rachel Reeves has raised concerns about the potential threat to “economic stability” in the face of an impending challenge to Keir Starmer’s leadership.
Recent data indicates that the UK economy expanded by 0.3% in March and 0.6% in the first quarter of the year, showing a slight deceleration from the revised 0.4% growth in February. This growth trend suggests that the repercussions of the conflict in the Middle East are starting to impact the economy.
The figures, released by the Office for National Statistics, were unveiled amidst political upheaval, with Health Secretary Wes Streeting anticipated to step down ahead of a leadership contest against the Prime Minister.
Former Deputy Prime Minister Angela Rayner, who is also viewed as a potential contender against Mr. Starmer, has been cleared by HMRC of any misconduct related to her tax affairs.
Reeves emphasized the effectiveness of the government’s economic strategy based on the latest data. She stressed the importance of safeguarding economic stability to prevent adverse effects on families and businesses, highlighting the ongoing efforts to fortify the economy for long-term resilience.
Although not explicitly addressing the leadership battle, Reeves’ remarks come at a time when UK government borrowing costs have risen amid uncertainty surrounding the Prime Minister’s position following disappointing local election outcomes. While gilt yields have steadied after an initial spike, they remain elevated.
Despite initial estimates suggesting a 0.5% growth in February, the actual growth rate was lower. The Office for National Statistics reported a notable increase in GDP for the first quarter, primarily driven by growth in the services sector, with positive performances in wholesale, computer programming, and advertising. Additionally, there was modest growth in production, and construction saw a partial rebound from previous weakness.
Economists like Suren Thiru from the ICAEW and Yael Selfin from KPMG anticipate that the positive economic momentum at the beginning of the year may diminish as the impact of the Iran conflict unfolds.
TUC General Secretary Paul Nowak emphasized the need for sustained economic growth and measures to address the cost of living crisis affecting families and businesses. He called for immediate action to support job creation and mitigate the financial strain on households, urging fair taxation of banks to generate funds for shielding the economy from the war’s repercussions.
Simon Pittaway, a senior economist at the Resolution Foundation, noted the robust start to the year for the UK economy but warned of an impending slowdown due to the Iran conflict. Projections suggest a decrease in household incomes and an increase in government borrowing, posing challenges for any future government initiatives.