The consultant will announce on Wednesday that the low growth in the UK “is not our fate” in a speech pledged to enhance the economic capabilities of the country.
Rachel Reeves initiatives will include a plan to connect high productive areas in Oxford and Cambridge, as well as plans for new railway projects and reservoirs.
But the background of her discourse is a completely dark one, after the economy was settled in the second half of 2024 and the confidence of work in the wake of tax increases in the October budget.
What has been suffering from the UK economy since the elections?
It is estimated that the United Kingdom has failed to grow in the second half of last year, after a relatively strong start until 2024. production is likely to be less than the budget responsibility office for 2025 as well, with the International Monetary Fund expected to expand 1.6 per cent in another. A look at her.
And Andrew Weshir, an economist at Bernberg, where the total exports decreased while steadily in other major economies, said that one of the factors wearing growth was “very bad international trade performance.” He added that the high production costs in the United Kingdom were weighing the export sector, as companies face some of the highest electricity costs in the developed world, along with unusually large increases in employment costs.
At the same time, the leading services sector has stopped contributing to total growth. Services raised growth at the beginning of 2024, with 0.9 percent expansion in the first quarter, but no growth in the three months to September and the three months to November, the latest available data.
Alan Taylor, a member of the Monetary Policy Committee at the Bank of England, warned of “deviation of confidence” due to the “cash flow pressure” that both companies and families feel in the form of a tax height and the continued high real estate mortgage costs.
What is the effect of the first budget for work?
Business groups say that the elements of the work budget in October made this inspiring image worse.
Reeves decision to collect 25 billion pounds by increasing national insurance contributions to the employer, in addition to a sharp increase in national living wages, added to employment costs and severely wounded commercial morale.
There are increasing signs that companies will register employees while trying to maintain costs under control. S & P Global flash buyers The poll showed last Friday that a clear share of companies that reduce the number of employees in January and December was the highest since the global financial crisis in 2009, regardless of the beginning of the epidemic in 2020.
Sushil Wadwani, which is said in the prices of the former Bank of England, said that Reeves “lost growth” partially as a result of the tax rise on companies, adding that the decision also opposed the labor market expectations for Al -Buri because it weighs How quickly to reduce interest rates.
“This is a lot of animal spirits, and animal lives have been attached,” said Wadwani.
What are the long -term problems?
All this comes in the context of a long -term weak image in the UK, especially the popular productivity. Production per hour in April to June 2024 decreased by 0.9 percent compared to the same quarter of last year, according to The ONS.
Compared to Q4 2019, before the epidemic, the production of the watch increased by only 0.8 percent, according to the latest numbers, much lower than 2 percent previously estimated. This is especially weak compared to the United States, as work productivity increased by 8.3 percent during the same period, supported by factors, including the strong investment of companies and the prosperous technology sector.
The business investment was fading, especially during a long period of recession after a referendum of Britain's exit from the European Union in 2016.
In the three months to September 2024, business investment increased by 5.7 percent compared to the same period in the previous year, according to official data. But the matter has risen with the same amount in the eight years since early 2016, which reflects the lack of growth after voting on leaving the European Union and shrinking during the epidemic.
This is much weaker than it was in the United States, where the non -residential private fixed investment increased by 40 percent since 2016. In the eight before the referendum of Britain's exit from the European Union, business investment in the United Kingdom increased by 26 percent.
How will Reeves try to change the narration?
Reeves has pledged radical changes to the UK planning system to cancel more infrastructure and home construction projects, in addition to better reforms Take advantage of retirement savings.
She was referring to her support A third runway at Heathrow Airport To enhance the connection, along with support for the so -called Oxford-Gamperbridge Arc It would enhance production in the science -rich area.
The industrial strategy that focuses on the main sectors, including advanced manufacturing and creative industries such as films, television and financial services in the spring, will follow.
With Donald Trump pledged to organize inclined pieces in the United States, the UK government was also promising actions Change driving in the competition organizer.
A new infrastructure authority has been announced and the national service is transferred to obtain delay in the settler project.
Jim O'Neil, the former treasury minister and economist in Goldman Sachs, said it is very important for the private sector adviser to convince that the growth rate of the United Kingdom can be raised, and this means explaining the value of its strategy to enhance investment.
O'Neill said that the rate of weak growth reflects the poor investment and productivity. “Its framework is designed in principle to deal with it, but they should be serious about it and make sure that anyone will be useful as a participant who thinks it.”
Will you work?
Wadwani said that he suspects that the short -term image will improve unless Reeves breaks the expectation “that taxes should rise again, given the weak state of public financial resources.
He added that the progress in reducing barriers that prevent trade with the European Union, the largest market in the United Kingdom, will provide a positive tremor to feelings.
Michael Sonders, of Oxford's economy, said many Reeves policies on public and private investment are logical, but he did not go far enough. He said that the government needs to focus on enhancing investment in unfinished assets, not only material assets.
He added that it is possible that it will contradict the shortage of construction workers, given the expansion of infrastructure and housing aspirations, which means setting a convincing workforce development plan
“A wider strategy is needed for potential growth,” he said. This means “making the case to the policies of the display side that pays the fruits of more than 10 to 20 years.”
Imagine data by Keith Fray
