Rishi Sunak’s promise to grow the economy ‘in tatters’ as UK enters technical recession – business live | Business

Rachel Reeves has ‘rejected entirely’ 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 what’s happened over the last 18 months, Reeves cites several key parts of Labour’s plan.

1. Reforms to planning system to get Britain building – freeing up £200bn of projects that are waiting for connection to the energy grid.

2. 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 – green steel, hudrogen, carbon capture and storage, floating offshore wind.

3. Reforms to the apprentiship levy to help firms train the next generation of workers

4. 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 – 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 “providing a running commentary on his own budget”.

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 don’t need.

Last month in Davos, the chancellor dropped a clear hint that there could be fresh tax cuts in March’s budget.

But then, at the start of this month, Hunt said he probably wouldn’t have the same scope for tax cuts as he had in last year’s autumn statement.

Q: How will you stop “Rishi’s recession” becoming “Rachel’s recession”?

Reeves insists the prime minister must own the downturn, as he’s 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: What’s Labour’s plan for growth, now you have dropped the £28bn a year green energy investment plan?

Rachel Reeves says Labour’s 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 today’s 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 didn’t 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 Labour’s 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 ‘steam ahead’ 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 – Labour’s 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 people’s fixed-rate mortgages will end this year, and face higher borrowing costs due to the “Tory mortgage bombshell”

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 doesn’t want to take us back to square one, but we are going backwards.

The prime minister’s 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

Labour: This is Rishi’s recession

EC cuts growth and inflation forecasts

Today’s 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 – 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.

There’s talk this morning that the Bank of England could be pushed into raising interest rates sooner than expected, by Britain’s drop into recession.

Yesterday’s 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 yesterday’s 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.

“Confirmation 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.

That’s certainly how the market views the situation as UK equities ploughed ahead.”

But Craig Erlam, senior market analyst at OANDA, argues that the BoE won’t be bounced into early rate cuts by the technical recession.

The Bank of England obviously won’t be swayed by the technical recession, as Governor Bailey alluded to earlier this week, but weaker household spending may suggest demand isn’t as strong as they anticipated.

We’ll 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 week’s 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 “slow to no growth post-Brexit” 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 Sunak’s failed pledge to grow the economy.

Today’s twin by-elections will show whether the Tories can defend their seats or whether voters really have had enough.”

Voters could point out that they haven’t had a chance to vote for Sunak at a general election yet.

The majority did, of course, plump for Brexit in 2016 – a decision which means Britain’s 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 Monday’s liveblog for full details).

The pound has not really been hit by the UK’s 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 €1.1699.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, says pessimism about the UK’s 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 UK’s prospects spreads.