How the UK economy has fared since Reeves' first budget

LONDON: Finance minister Rachel Reeves has vowed for the past year to speed up Britain’s economy but growth has slowed recently on worries about more tax increases in her budget on Wednesday.

Below is a summary of economic indicators just over a year after Reeves’ first budget, when she raised taxes by the most in more than 30 years.

Britain’s economy had a strong start to 2025 and the International Monetary Fund says Britain is on track for the second-fastest growth among the Group of Seven advanced economies over the year, after the United States.

In 2026, Britain was set to have the third-fastest growth.

However, the economy expanded by just 0.1% in the third quarter, held back in part by a shutdown caused by a cyberattack at carmaker Jaguar Land Rover that hit suppliers too. Purchasing Managers’ Index business surveys suggest that tax worries could limit growth to 0.1% in the fourth quarter too.

LABOUR MARKET LOSING STEAM

Reeves announced big increases in employers’ social security contributions and the minimum wage in her 2024 budget. Firms have cited the higher costs as a factor behind a cut in hiring.

Payrolls in September and October suffered the biggest two-month drop since late 2020. The jobless rate rose to its highest since early 2021 at 5.0%, although the survey from which the rate is estimated is being overhauled, leading to questions about its reliability.

The Bank of England believes the worst of the hit from last year’s tax increase on employers has now passed.
Wage growth has slowed – inflation-adjusted average earnings in the third quarter were only 0.5% higher than a year earlier.

The line chart shows the regular pay growth and inflation adjusted pay growth in UK between 2015 and 2025.

CONSUMERS HOLD OFF SPENDING

Retail sales volumes in October fell in monthly terms for the first time since May, although some retailers said part of the weakness was due to consumers waiting for this month’s Black Friday deals.

The GfK consumer confidence index edged down in November while the British Retail Consortium trade body reported the biggest drop in sentiment since April.

Recent updates from major retailers have shown nervousness about the impact of Reeves’ budget on consumer sentiment.

INFLATION FALLS BUT STILL TOO HIGH

Britain’s main inflation rate rose to 3.8% in July, August and September from 2.3% in October 2024, with the tax increase on employers adding to price pressures. It slowed to 3.6% last month but remains nearly double the BoE’s 2% target.

Measures of core inflation, showing underlying price growth, fell in October. Services inflation was the weakest since December 2024.

Reeves says she wants to help lower inflation and she is expected to cut value-added tax on household energy bills.

INTEREST RATES

The BoE has reduced interest rates five times since the Labour Party won an election in July 2024. But at 4% its benchmark Bank Rate is double that of the European Central Bank.