Tougher Times Ahead
March 2025
Rachel Reeves is in a corner and it’s going to tighter before she manages to get out. If she does at all. And it’s bad news for the country’s smaller businesses.
That’s my sombre take on the state of the UK government finances ahead of the Chancellor’s Spring Statement.
Reeves may be the first female Chancellor in history but she cannot escape the same constraints that has faced her predecessors - and by that I mean the power of the markets and international events to derail her plans.
After promising ‘growth, growth, growth’ in last summer’s election campaign (how distant that positivity feels now), she hemmed herself in by imposing tough fiscal rules on herself, and at the same time gave herself very little economic room to manoeuvre if things turned south.
And that’s what’s happened.
A stagnant UK economy and spiralling debt and borrowing charges have squeezed finances to the last inch. And Donald Trump’s tariff threats are a double-whammy: they’ll slow the global economy, which is bad for the UK as our trading partners will suffer; and they’ll make it harder for UK business to export to the world’s biggest economy.
So, the Chancellor’s not sitting pretty. In fact she’s sitting pretty uncomfortably as she’s desperate to show fiscal discipline to the watching markets, and yet facing backbench rebellions (and some Cabinet arguments too) by demanding swingeing cuts to public services, including for many vulnerable people.
It’s hardly the action of a compassionate Labour chancellor.
And if even she succeeds in cutting back the size of the Civil Service, and culling NHS England, and cutting spending, the impact of these things will take time to filter through and make a difference. Plus she's got to find the money for additional defence spending to meek Keir Starmer's commitments to Donald Trump and NATO to increase military investment.
And with the election cycle starting up again in about three years time, she’s got less and less time on her side before the politics of re-election start to kick-in.
So what can we expect later today?
Well, I think she’ll double down on her promises to deliver growth through cutting services. She’ll delay tax rises to October. And she’ll be relieved that inflation figures this morning gave her some welcome good news with the rate coming in lower than expected.
I expect she’s also learned some hard lessons since October and will give herself more leeway in her borrowing and spending plans so she’s not in the same tight spot come the Autumn.
But no matter how she dresses it up, the picture is not pretty and Reeves is relying on a lot of things outside her control to help come to her rescue.
#SpringStatement #UKInflation #RachelReeves #UKeconomy