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We haven't heard much from Rachel Reeves so far in 2026. So, is the Chancellor set to make waves next week with her Spring Statement?
City AM Editor-in-Chief Christian May discusses in this instalment of the Week in Business.
#politics #economics #uknews #labour #reeves
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0:00
We haven't heard much from Rachel Reeves
0:02
so far this year, probably a deliberate
0:04
strategy, but is the Chancellor set to
0:06
make waves next week at the spring
0:08
statement? Welcome to the week in
0:09
business with me, Christian May.
0:15
Rachel Reeves didn't have a great 2025.
0:18
UK quarterly GDP growth peaked in Q1 at
0:21
0.7%
0:22
as firms front-loaded their activity to
0:24
get ahead of Trump's tariffs before
0:26
slumping to 0.3% in Q2 and then
0:29
flatlining at 0.1% for the final two
0:32
quarters of the year. Now, that line
0:34
tells its own story, but within it there
0:36
were moments of absurdity such as the
0:37
Chancellor's sobbing in the Commons and
0:39
tragedy such as the deeply damaging
0:41
period of speculation leading up to the
0:44
budget. Now, politically the government
0:46
hasn't enjoyed a great start to 2026. At
0:49
one point it looked as if the Prime
0:50
Minister was about to be forced out of
0:51
office or at least challenged for the
0:53
leadership. And the Chancellor's fate is
0:56
tied to Kier Starmer's. Little wonder
0:58
she's kept a low profile. She flew in
1:00
and out of Davos virtually unnoticed and
1:02
she didn't make the guest list for the
1:04
PM's big China trip. Next week she'll
1:06
deliver the annual spring statement at
1:08
which she'll have to respond to the
1:10
OBR's latest forecasts on growth and
1:12
unemployment. Now, the fiscal watchdog
1:15
won't formally score the government
1:16
against its fiscal rules as in a
1:18
sensible move, they'll now only do that
1:20
once a year at the budget. But they
1:22
might allow themselves a a we told you
1:24
so moment given what they said at last
1:26
year's spring statement.
1:28
It was March 2025 and Labour's
1:31
employment rights bill was in the early
1:32
stages of its parliamentary development.
1:35
Commenting on what we knew about it at
1:36
the time, the OBR said employment
1:38
regulation policies that affect the
1:40
flexibility of businesses and labor
1:42
markets or the quantity and quality of
1:44
work will likely have material and
1:47
probably net negative economic impacts
1:50
on employment. And so it has come to
1:53
pass. Unemployment rose, continued to
1:55
rise, and is now forecast by JP Morgan
1:58
to surpass the pandemic era high,
2:00
touching 5.5% within a couple of months.
2:03
Remember, it was 4.2% when Labour came
2:05
into office. Remarkably, for a Labour
2:07
government, a Labour government, they
2:09
don't really seem to care.
2:11
Now, when she delivered last year's
2:13
spring statement, Reeves declared it
2:15
would kick-start economic growth and
2:17
bring about a new era of national
2:19
renewal.
2:21
Alas, it did not come to pass.
2:23
Now, next week, when she delivers the
2:25
set-piece statement to the Commons, she
2:28
will attempt a number of difficult
2:29
things. Firstly, she will try to avoid
2:31
making any news. No new tax or spending
2:34
announcements are expected. Secondly,
2:36
she'll try to tell us that we are in
2:38
fact experiencing national renewal, that
2:41
interest rates have come down, inflation
2:42
is falling, and by some creative
2:44
measures our economic growth is ahead of
2:46
the pack.
2:48
She will invite us to ignore the
2:49
evidence of our own eyes.
2:51
Finally, she'll try to demonstrate that
2:53
the government's prudent management of
2:54
the economy has delivered a
2:56
multi-billion-pound windfall through
2:58
lower borrowing following strong
3:00
financial figures in January showing a
3:02
30-billion-pound surplus after borrowing
3:04
for the financial year to January came
3:07
in at 112 billion pounds, around 11 and
3:10
1/2% lower than the same 10-month period
3:13
last year. Happy days. Though it still
3:15
marked the fifth highest April to
3:17
January borrowing run on record. What's
3:20
more, this is only worth celebrating if
3:21
you get your kicks from the one-off
3:23
spike in tax revenue that follows major
3:25
tax hikes and behavioral change. In this
3:28
case, much of the relief came from
3:29
people selling their assets and
3:31
investments in the run-up to last year's
3:32
budget. In other words, January's
3:35
borrowing figures are a sugar high. The
3:37
problem for Reeves is that Labour MPs,
3:40
who are never the most financially
3:41
literate or fiscally cautious bunch,
3:44
will put pressure on the government to
3:45
spend the savings. Given that Starmer is
3:48
now basically a prisoner of his MPs and
3:50
left-leaning cabinet ministers, expect
3:52
intense debate this spring over where
3:54
that money should be splashed. And of
3:57
course, we'll get those economic
3:58
forecasts from the OBR on growth and
4:01
unemployment next week, setting the
4:03
context for the political and economic
4:05
debate that will, before you know it,
4:07
lead us up to this year's budget. My
4:09
fear is that a low-key spring statement,
4:12
followed by political turmoil in the
4:13
Labour Party, basically a given with
4:16
local elections just a few months away,
4:18
will mean we face at best another year
4:20
of managed decline or at worst a harsh
4:23
leftward turn from a government that has
4:25
already demonstrated that it doesn't
4:27
have a clue how to grow the economy.
4:30
Reeves has been keeping a low profile,
4:32
but the spotlight is about to turn on
4:35
her.
4:36
That's it from me this week. Join me
4:38
next week after that spring statement,
4:40
and in the meantime, stay up to date and
4:42
in the know with the City AM app and on
4:44
cityam.com.
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