London (Parliament Politics Magazine) – Rachel Reeves is preparing for a big challenge in 2025 with stalls in economic growth and a difficult spending review. Experts predict balancing spending and growth will be difficult.
The new figures from the ONS reported that the economy contracted by 0.1% in October, just like it did in September. This marks the first time since the GDP has fallen for two months in a row since the Covid started in 2020.
The ONS cut growth from 0.1% to zero for the July to September period, and living standards also went down.
Carl Emmerson, from the Institute for Fiscal Studies, warned that the multi-year spending review in June will be a significant test for the British government.
As reported by the Independent, the BoE expects GDP growth to remain at zero from October to December.
While the Office for Budget Responsibility expects GDP to grow by 2% in 2025, a Treasury report shows independent forecasters expecting only 1.3% growth, a slowdown that could impact public finances with less tax income and higher costs.
Mr Emmerson praised the chancellor’s focus on investment for its future long-term benefits but warned that a lack of short-term growth could lead to more scrutiny over tax and spending policies.
He stated, “The outlook is uncertain. She might get lucky. It’s possible growth will exceed the OBR’s forecast, things could go very well. But, equally, she could get unlucky. And I guess we don’t have much of a sense of what she would do.”
Prime Minister Sir Starmer stressed the importance of ensuring people experience the real-life benefits of economic growth, rather than focusing on GDP figures.
A leading think tank, Resolution Foundation developed a new way to measure “real living standard,” which includes disposable income and the value of public services received.
The report found that the worst-off 10% of working-age people could lose 2% of their disposable income, but gains from better public services would leave them £28 better off in total.
Mike Brewer, the think tank’s interim CEO stated the “budget tax-rise gamble from the chancellor is that, while people may not be better off in purely financial terms, they will feel better off if we can have better, less dysfunctional public services.”
The poorest families are hit hardest by rising housing expenses, council tax rises, and reduced social security, while wealthier households, who depend less on public services, benefit less from minimum wage hikes.
The Guardian reports that Mr Brewer said, “If we put a cash figure on the benefits in kind from public services, then the 0.6% real living standards fall for the richest 10th of households is equivalent to a cash hit of £356 per person next year.”
He added despite government efforts to enhance disposable incomes, next year may see declines, and households will get benefits only if public services improve.
Living standards will face more pressure as CPI inflation reached 2.6% last month, marking its highest level since March and the second rise in two months.
Chancellor Rachel said, “The challenge we face to fix our economy and properly fund our public finances after 15 years of neglect is huge.”
She added, “But this is only fuelling our fire to deliver for working people. The budget and our Plan for Change will deliver sustainable long-term growth, putting more money in people’s pockets through increased investment and relentless reform.”
Ms Reeves called for a detailed review of spending, requiring departments to achieve 5% savings in their budgets through improved efficiency.
The upcoming spending review in June will be challenging for the Treasury, with departments required to cut 5% from their budgets while dealing with growing demands for more extra funding to support public services.