Reeves: Rishi Sunakâs promise to grow the economy is now in tatters
This is Rishi Sunakâs recession, declares Rachel Reeves, Labourâs Shadow Chancellor.
Reeves points out that the news that the UK is now in a technical recession will be âdeeply worryingâ for families and businesses.
Following the news that GDP shrank by a worse-than-expected 0.3% in October-December, Reeves says:
âRishi Sunakâs promise to grow the economy is now in tatters.
The prime minister can no longer credibly claim that his plan is working or that he has turned the corner on more than fourteen years of economic decline under the Conservatives that has left Britain worse off. This is Rishi Sunakâs recession and the news will be deeply worrying for families and business across Britain.
It is time for a change. We need an election now to give the British people the chance to vote for a changed Labour Party that has a long-term plan for more jobs, more investment and cheaper bills. Only Labour has a plan to get Britainâs future back.â
As flagged earlier, todayâs GDP report shows the UK stagnated in the second quarter of 2023, before shrinking in both Q3 and Q4.
Key events
Phillip Inman
Analysis by the UK economist for the jobs site Indeed, Jack Kennedy, makes the important point that the labour market is still not where the Bank of England thinks it should be.
Kennedy says the GDP figures showing a recession in the second half of 2023 will be a side issue for the central bank, which is much more focused on the prices that services companies are charging, which has shown no sign of decreasing by much, and the latest wage growth figures.
âFigures from the ONS was higher than expected, while data from the Indeed Wage Tracker shows that annual growth in advertised pay for new hires was running at 6.4% in January,â he said.
âThough down from last yearâs peak above 7%, itâs well above equivalent measures for the euro area (3.9%) and US (3.6%).
âWith labour supply constraints appearing more of an issue in the UK than elsewhere, stubborn pay pressures indicate why the Bank of England may need to maintain high rates longer than the ECB and Fed.â
Rachel Reeves has ârejected entirelyâ the suggestion there is little difference between what Labour and the Conservatives are offering the electorate.
Asked what specifically she would do differently, compared to whatâs happened over the last 18 months, Reeves cites several key parts of Labourâs plan.
-
Reforms to planning system to get Britain building â freeing up £200bn of projects that are waiting for connection to the energy grid.
-
A new National Wealth Fund, with a £7.3bn endowment, and GB Energy with just over £8bn, will invest in jobs and industries of the future â green steel, hudrogen, carbon capture and storage, floating offshore wind.
-
Reforms to the apprentiship levy to help firms train the next generation of workers
-
A modern industrial strategy
Q: How would Labour increase productivity among the economically inactive?
Rachel Reeves says this is a huge challenge, and that the UK is an outlier in failing to get people back to work after the pandemic.
Many people are on hold because they are in the record-long NHS waiting list â that needs to be tackled, she says.
Scrapping the non-dom tax status will help fund two million more NHS appointments each year to clear the backlog, Reeves adds.
Rachel Reeves has criticised Jeremy Hunt for âproviding a running commentary on his own budgetâ.
Reeves tells reporters in London that she has never seen anything like it.
She says:
It is dangerous and it is very misguided, and I would urge him to stop this because it creates the uncertainty that we really donât need.
Last month in Davos, the chancellor dropped a clear hint that there could be fresh tax cuts in Marchâs budget.
But then, at the start of this month, Hunt said he probably wouldnât have the same scope for tax cuts as he had in last yearâs autumn statement.
Q: How will you stop âRishiâs recessionâ becoming âRachelâs recessionâ?
Reeves insists the prime minister must own the downturn, as heâs been in charge since autumn 2022. The economy is now smaller than when Sunak became PM, she says.
And she points out that many businesses have helped Labour draw up its plans for growth.
Reeves: Don’t need recession to bring down inflation
Q: Would you have been prepared to induce a recession to tackle inflation, and if not, what would you have done differently as chancellor?
Rachel Reeves says she doesnât buy the argument that you need a recession to bring down inflation.
She points out that the UK still has the highest inflation in the G7, while its likely that the UK and Japan are the only countries that fell into recession at the end of 2023.
She tells reporters in London:
Other countries are doing an awful lot better at controlling inflation while also managing to grow their economy.
Q: Whatâs Labourâs plan for growth, now you have dropped the £28bn a year green energy investment plan?
Rachel Reeves says Labourâs plan for a national wealth fund and Great British Energy will drive growth in the economy, providing investment alongside the private sector.
She says it was welcome that so many businesses said last week that joint investment is needed, along with planning reforms.
Rachel Reeves then takes questions from reporters at her press conference in London.
Q: Do you recognise that todayâs recession is relatively mild, compared to the pandemic and the financial crisis?
Showing her economic background, Reeves replies crisply that the definition of a recession is two consecutive quarters of negative growth.
The economy contracted by 0.1% in Q3 and by 0.3% in Q4.
These are worse numbers than economists had been predicting. This is a recession.
Reeves adds that we didnât need these numbers to know that families are struggling through an enormous cost of living crisis, and businesses are struggling as well.
She continues:
As [businessman] Stuart Rose said on the radio this morning, if it quacks like a recession, it is a recession.
This is most certainly a recession.
Rachel Reeves says Labourâs economic plan is based on stability, investment and reform.
Stability will come from strong fiscal rules, robust economic institutions, and a fully-costed and funded manifesto, she says.
Investment will include partnerships with private sector to âsteam aheadâ in industries of the future, and a new national wealth fund to invest alongside business in automotive sector, ports and steel. Plus Great British Energy â Labourâs plan for a new, publicly-owned clean energy company.
Reform means taking on vested interests to get Britain building again, helping working people develop skills, a genuine living wage, and cutting the NHS backlog to get people back to work.
Rachel Reeves then highlights the economic challenges facing UK families.
She points out that the average British family is 20% worse off than their German counterparts
One in three working age families have less than £1,000 in savings.
Typical family renewing their mortgage this year will pay an extra £240 each month. Three million peopleâs fixed-rate mortgages will end this year, and face higher borrowing costs due to the âTory mortgage bombshellâ
Rishi Sunak claims he has a plan, but the plan is not working, Rachel Reeves adds.
Taking aim at the PM, she tells reporters:
He claims that the economy has turned a corner, but the economy is shrinking.
He claims he doesnât want to take us back to square one, but we are going backwards.
The prime ministerâs claims are in tatters.
The cornerstone of his leadership has been shattered.
The promise to grow the economy has been broken.
Reeves: Britain remains trapped in a spiral of economic decline
Labourâs shadow chancellor, Rachel Reeves, is warning that Britain is trapped in a spiral of economic decline.
Giving a press conference in London now, Reeves says this morningâs drop into recession is âdeeply worrying newsâ for families who are struggling to make ends meet, and for businesses too.
Reeves points out that todayâs GDP data is provisional, and may change (the ONS regularly updates its data), but adds:
It is absolutely clear that Britain remains trapped in a spiral of economic decline.
Reeves also points out the GDP per head (a measure of living standards) fell in every quarter last year (as covered at 7.58am).
She says people didnât need todayâs GDP data to know that the economy wasnât working. But, they âshine a spotlightâ on the scale of that failure, she insists, adding:
These numbers shine a spotlight on the scale of that failure.
The confirmation of recession exposes a government and a prime minister completely out of touch with the realities on the ground.
Labour: This is Rishiâs recession
Labour are keen to pin the recession on Rishi Sunak, with a new advert contrasting the PMâs claim that the economy has âturned the cornerâ with this morningâs bad economic news:
EC cuts growth and inflation forecasts
Over in Brussels, the European Commission has cut its growth forecasts for this year.
The EC now expects the eurozone to only grow by 0.8% in 2024, down from an earlier forecast of 1.2%.
The wider European Union is expected to grow by 0.9%, a cut from 1.3%.
The Commission says:
After narrowly avoiding a technical recession in the second half of last year, prospects for the EU economy in the first quarter of 2024 remain weak.
However, economic activity is still expected to accelerate gradually this year. As inflation continues to abate, real wage growth and a resilient labour market should support a rebound in consumption.
This weaker growth means the EC has cut its inflation forecasts too.
Consumer price inflation, which hit 5.4% in 2023, is now expected to drop to 2.7% this year, not the 3.2% forecast in November. It is then seen slowing to 2.2% in 2025.
The EC says:
Lower-than-expected inflation outturns in recent months, lower energy commodity prices and weaker economic momentum set inflation on a steeper downward path than anticipated in the Autumn Forecast.
In the near term, however, the expiry of energy support measures across Member States and higher shipping costs following trade disruptions in the Red Sea are set to exert some upward price pressures, without derailing the process of declining inflation.
Todayâs GDP report shows there was another slump in UK homebuilding at the end of last year.
Output from new construction work fell by 5.0% in the October-December quarter, including an 8% drop in private housing â the fifth quarterly drop in a row.
Repair and maintenance work grew by 4%, resulting in a 1.3% drop in overall construction output in Q4.
Thereâs talk this morning that the Bank of England could be pushed into raising interest rates sooner than expected, by Britainâs drop into recession.
Yesterdayâs inflation report, showing prices rising slightly slower than expected, could also give the BoE some confidence to cut borrowing costs.
Joshua Mahony, chief market analyst at Scope Markets, says:
Coming hot on the heels of yesterdayâs inflation report that saw both headline and core CPI move sharply lower for the month of January, we are seeing a perfect storm build that puts the Bank of England in a prime position to cut rates in the coming months.
Concerningly, we have also seen UK GDP per head continue to trend lower, with the tepid economic growth seen over recent years only coming about through an increase in the population rather than any improvement in the economy per se.
Russ Mould, investment director at AJ Bell, points out that the UK stock market was slightly higher this morning, amid recession-driven rate cut hopes.
âConfirmation that the UK is in recession has done nothing to knock UK stocks off course. An economy pushing through mud is not new news and if anything, it might encourage the Bank of England to think harder about cutting interest rates to avoid further economic deterioration.
Thatâs certainly how the market views the situation as UK equities ploughed ahead.â
But Craig Erlam, senior market analyst at OANDA, argues that the BoE wonât be bounced into early rate cuts by the technical recession.
The Bank of England obviously wonât be swayed by the technical recession, as Governor Bailey alluded to earlier this week, but weaker household spending may suggest demand isnât as strong as they anticipated.
Weâll get another update on that tomorrow from the January retail sales figures.
With inflation expected to fall to target in the second quarter, maybe even further after this weekâs readings, the debate around rate cuts could intensify earlier than they would have otherwise thought. Slower wage growth would obviously help that along greatly.
Charles Hepworth, investment director at GAM Investments, says Britain is now in the âslow to no growth post-Brexitâ world, following its drop into recession.
He writes:
The adage of voters getting the government they deserve seems frivolous, but this is the slow to no growth post-Brexit alternate universe we find ourselves in despite prime minister Sunakâs failed pledge to grow the economy.
Todayâs twin by-elections will show whether the Tories can defend their seats or whether voters really have had enough.â
Voters could point out that they havenât had a chance to vote for Sunak at a general election yet.
The majority did, of course, plump for Brexit in 2016 â a decision which means Britainâs economy is 5% smaller than it would have been if the country had chosen to stay in the European Union, according to an analysis by Goldman Sachs this week [see Mondayâs liveblog for full details].
The pound has not really been hit by the UKâs fall into recession.
Sterling is down 0.1% against the US dollar this morning, at $1.255, and a similar amount against the euro at â¬1.1699.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, says pessimism about the UKâs prospects are weighing on the poudns.
It seems clear that national resilience in the face of higher interest rates and painful borrowing costs has finally buckled.
Even though the official recession recognition was expected, confirmation has pushed down the pound slightly, as pessimism about the UKâs prospects spreads.