Reeves: Rishi Sunak’s promise to grow the economy is now in tatters

This is Rishi Sunak’s recession, declares Rachel Reeves, Labour’s Shadow Chancellor.

Reeves points out that the news that the UK is now in a technical recession will be “deeply worrying” for families and businesses.

Following the news that GDP shrank by a worse-than-expected 0.3% in October-December, Reeves says:

“Rishi Sunak’s 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 Sunak’s 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 Britain’s future back.”

As flagged earlier, today’s GDP report shows the UK stagnated in the second quarter of 2023, before shrinking in both Q3 and Q4.

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Key events

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: 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 doesn’t 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.

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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’s 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 morning’s drop into recession is “deeply worrying news” for families who are struggling to make ends meet, and for businesses too.

Reeves points out that today’s 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 didn’t need today’s GDP data to know that the economy wasn’t working. But, they “shine a spotlight” 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 Rishi’s recession

Labour are keen to pin the recession on Rishi Sunak, with a new advert contrasting the PM’s claim that the economy has “turned the corner” with this morning’s 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.

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.

Construction is estimated to have fallen 1.3% in the 3mths to Dec 2023 compared with the 3mths to Sep 2023. New work ⬇️ by 5.0% over the period, while repair & maintenance was ⬆️ by 4.0%. Within new work, any motivation to build was low in new housing, ⬇️ 8.0% @ONS

— Emma Fildes (@emmafildes) February 15, 2024

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.

#UK economy slipped into recession dragged by private, gov. consumption & net trade vs. capex surge

Flat growth in near term on cumulative tightening effect before modest pick-up in year-end & 2025

=> further evidence for earlier #BoE start of monetary policy easing in May!

— Nikolay Markov (@MarkoNikolay) February 15, 2024

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).

British GDP is 5 percent lower as a result of Brexit calculate Goldman Sachs, stripping UK economy of any dynamism. It will get worse. It is now vital the damage is recognised – and remedied. As Brexit damage persists, a tale of two competing strategies

— Will Hutton (@williamnhutton) February 14, 2024

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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.