LONDON — In an address to lawmakers on Wednesday, the British Treasury chief Rachel Reeves disclosed that the country’s economic growth is projected at a modest 1% this year, a significant downgrade from prior estimates. Her discussion also included plans to bolster defense spending amidst a challenging economic landscape.
Reeves attributed the sluggish growth to an unpredictable global environment, but opponents argue that her fiscal policies bear much of the blame. In an effort to adhere to her strict budgetary rules, she introduced new measures to address financial constraints.
As projections for 2025 indicate slower growth and higher debt interest repayments, the Office for Budget Responsibility (OBR), an independent economic forecaster, identified a 14 billion-pound ($18 billion) deficit. To bridge this gap, Reeves proposed controversial welfare cuts, stirring concerns within the Labour Party regarding potential poverty increases for up to 250,000 individuals, including 50,000 children. Additional strategies include cracking down on tax avoidance and streamlining government operations.
Looking further ahead, the OBR’s forecasts offer a glimmer of hope, suggesting housing starts may reach a four-decade peak due to recent planning reforms. This optimistic outlook implies that if future growth predictions hold true, pressure on the government to reduce spending or raise taxes may ease before the end of this Parliament term, which extends until mid-2029.
Despite this, the OBR cautioned about emerging international risks, especially concerning tariffs from the Trump administration potentially sparking a global trade war. Paul Johnson, head of the Institute for Fiscal Studies, warned of the possibility of further growth downgrades and expressed concerns about Reeves’ rigid fiscal approach leaving her vulnerable to unforeseen events.
“In effect, the Chancellor is facing six months of damaging speculation and uncertainty in tax strategies,” Johnson remarked.
Amidst geopolitical unrest, particularly following the U.S. President Donald Trump’s return, Reeves emphasized the need for heightened national security. Consequently, she confirmed a 2.2 billion-pound ($2.9 billion) boost in defense budget, which Prime Minister Keir Starmer described as the largest such increase since the Cold War.
“This investment extends beyond bolstering national security—it’s about securing our economy as well,” Reeves stated. “A rise in defense expenditure means widespread benefits for the entire nation.”
The British economy, ranked sixth globally, has struggled since the 2008-09 financial crisis, and the new Labour administration has prioritized stimulating growth. Critics, however, argue Reeves herself is partly to blame for the economic pessimism, citing her initial lack of optimism and subsequent tax hikes, notably affecting businesses.
“She has crafted her own unfavorable scenario,” criticized Mel Stride, the economy spokesperson for the opposition Conservative Party.
On a brighter note, Reeves received encouraging news as consumer price inflation fell to 2.8% from 3% previously, though this remains above the Bank of England’s target of 2%. Nevertheless, she is hopeful that diminishing inflation will precipitate interest rate cuts, thus reducing governmental debt interest costs.