LONDON — The British economy will only grow by 1% this year, half the rate previously anticipated, Treasury chief Rachel Reeves conceded Wednesday in a statement to lawmakers about the state of the public finances.
Against the backdrop of sluggish economic growth that she blamed on a volatile international environment but which critics say she is largely responsible for, Reeves unveiled measures intended to meet her self-imposed budget rules.
With growth in 2025 lower than anticipated, there’s a hole in the government’s revenue expectations, which Reeves has sought to fill with as well as measures to rein in tax avoidance and tax evasion, and by lowering the day-to-day costs of running government.
Reeves’ spring statement to Parliament was made in response to what was a fairly gloomy near-term economic assessment by the government’s independent forecaster, the Office for Budget Responsibility.
Reeves was able to point to higher growth forecasts for the years ahead, which if they prove accurate, should ease the pressure on her to lower spending or increase taxes in the remaining years of this Parliament, which can run until the middle of 2029.
Reflecting geopolitical turbulence caused by the return of U.S. President Donald Trump, Reeves told lawmakers that a “more insecure world” requires a greater focus on national security.
As a result, she confirmed a 2.2 billion-pound ($2.9 billion) increase in defense spending, which Prime Minister Keir Starmer has said is the .
“This additional investment is not just about increasing our national security but increasing our economic security, too,” Reeves said. “As defense spending rises, I want the whole country to feel the benefits.”
The British economy, the sixth-largest in the world, eked out modest growth of 0.1% in the fourth quarter, a hugely disappointing outcome for , which has made boosting growth its number one economic policy. Since the global financial crisis in 2008-2009, the British economy’s growth performance has been notably below its long-term average.
Critics say Reeves is partly responsible for gloomy economic news since Labour returned to power in July after 14 years, because she was overly downbeat when taking on her role and has since , particularly on businesses.
She received some welcome news Wednesday, with official figures showing that price rises in the U.K. moderated by more than anticipated in February. The Office for National Statistics said consumer price inflation fell to 2.8% from 3% the previous month. Most analysts had expected a more modest decline to 2.9%.
Though inflation is still higher than the Bank of England’s 2% target, Reeves will likely hope that easing price pressures will lead to bigger interest rate reductions than predicted. That would lower the interest payments the government pays on its debt, potentially freeing up money for the government to spend on public services.
Last week, the even though the economy is barely growing and the nation faces more uncertainty in light of the being enacted by the Trump administration in the U.S.
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