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How will Rachel Reeves react to Bank of England's growth forecasts cut? | Week in Business
Feb 9, 2025
The Week in Business sees City AM's Editor-in-Chief Christian May break down the top stories of the week.
This week the focus is on economic growth – or the lack of it – as the Bank of England slashes its growth forecasts and issues warnings over the future of the UK economy. How should Rachel Reeves react?
Will we see tax rises or spending cuts?
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Produced by: Christian May, Joseph Curay Teneda, Emmanuel Nwosu
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0:00
if the chancellor was still on a high
0:01
from last week's big growth focused
0:03
speech the bank of England has just
0:05
pulled her back down to earth and for
0:07
good measure poured a bucket of cold
0:09
water over her welcome to City's week in
0:11
business with me Christian
0:16
may I hope you don't come here to be
0:18
cheered up really I do plenty of other
0:20
videos on YouTube can help you with that
0:21
but this is the place I'm afraid for
0:23
hard truths and none harder today than
0:25
the hammer blow fact that the bank of
0:27
England has slashed its economic growth
0:30
forecasts in half having previously
0:32
thought that the UK economy would grow
0:34
1.5% this year the governor Andrew
0:36
Bailey broke the news yesterday that
0:38
they now anticipate a rate of just
0:41
0.75% barely noticeable yes the bank of
0:45
England cut interest rates which is good
0:47
news for some mortgage holders and
0:48
borrowers but they did it precisely
0:50
because the economy is in the emergency
0:52
room inflation could reach 3.7% towards
0:55
the end of this year unemployment is
0:57
rising and in the restrained words of
1:00
the bank of England business and
1:01
consumer confidence has declined since
1:03
last October's budget in the runup to
1:06
that budget cam warned that the
1:08
government's miserable Doom and Gloom
1:10
tone you remember that would spook
1:12
businesses and consumers and of course
1:14
it did investment decisions were
1:16
deferred expansion plans put on hold
1:18
there was a palpable nervousness right
1:20
through September and October and the
1:22
consequences of that became clear in
1:24
November's growth figures just .1% and
1:27
we'll get December's data next week then
1:29
the budget is itself reigned tens of
1:31
billions of pounds of new taxes on
1:33
businesses along with a mountain of
1:35
additional costs and as what was feared
1:38
became real employers across the country
1:40
began to react survey after survey has
1:43
shown us that firms began this year by
1:45
letting staff go by cancelling
1:47
investment passing on cost increases
1:50
we've been through this every week I'm
1:51
afraid now you know the picture by now
1:54
and just this week we got the latest
1:55
data from the manufacturing and services
1:58
sectors of the economy and it's not good
2:00
and now of course the bank of England
2:02
has totted up all this misery and
2:04
concluded that the economy is basically
2:06
not going to grow this year so growth is
2:09
stagnating and inflation is lingering
2:11
now there's a word for this and it's not
2:12
a pretty one stagflation a disastrous
2:15
State of Affairs now we're not in it yet
2:18
but we can certainly see it on the
2:19
horizon and the question is can we avoid
2:21
it well we know that the government is
2:23
going to have to take some dramatic
2:25
decisions next month once the OB the
2:27
Watchdog of the government's tax and
2:29
spending plans publishes its own
2:31
assessment of growth in the year ahead
2:34
economists fully expect them to conclude
2:36
that thanks to high borrowing costs and
2:38
poor growth Rachel Reeves has lost her
2:39
so-called fiscal Headroom basically how
2:42
much room she has to spare in order to
2:44
stay within her self-imposed uh Ironclad
2:47
rules regarding the public finances now
2:50
after the budget this Headroom was
2:51
around1 billion pound but the thinking
2:53
now is that it could in fact have turned
2:55
into around minus 20 billion in other
2:58
words a black hole 20 billion pound
3:01
black hole in the public finances well
3:03
wherever we heard that before the last
3:04
time the chancellor claimed to have
3:06
found one left over by the previous lot
3:09
she said about launching a 40 billion
3:10
pound tax raate on businesses so will
3:13
she do that again she says not that she
3:15
hasn't exactly promised not to and this
3:18
brings us back to whatever dramatic
3:20
action is is expected in March once the
3:22
OB shows its workings how will the
3:25
chancellor balance the books so she
3:27
banked on economic growth uh but her
3:29
policies have destroyed that so spending
3:32
cuts or tax hikes how about spending
3:34
cuts in the spring followed by tax hikes
3:36
in the Autumn well our latest monthly
3:39
poll of Voters carried out by freshwater
3:41
strategy reveals that the public are
3:43
wise to this risk with a majority now
3:45
expecting hikes to corporation tax
3:47
income tax and vat during this
3:49
Parliament that same poll of the general
3:51
public not just of CC readers revealed
3:54
that 70% of people have no confidence in
3:56
the government's economic policy and a
3:58
very similar number have no confidence
3:59
in the
4:00
chancellor but there's another option
4:02
for Rachel Reeves cancel the deeply
4:05
damaging tax Rises and Regulatory
4:07
burdens due to kick in over the next few
4:09
months recognize that the situation has
4:11
changed the economy isn't able to Bear
4:13
the burden right now blame Trump if you
4:16
want I don't care blame the Tories if
4:17
need be but find a way out of the mess
4:20
that has been made now I've said this
4:23
before of course growth in the future is
4:25
great build those houses build the roads
4:27
and the runways build the nuclear power
4:29
station another great policy announced
4:31
this week but if the government persists
4:33
with its growth destroying policies in
4:35
the here and now then it's not crazy to
4:38
ask what exactly are these future power
4:40
stations going to power now I genuinely
4:43
want to sit here one week and talk about
4:44
something else believe me but the
4:46
economy and the government's
4:48
mismanagement of it is pretty much the
4:49
only show in town right now and it
4:51
matters hugely and we will cover every
4:54
Twist and Turn of it meanwhile of course
4:57
life goes on and the weekend is very
4:59
nearly here so I hope you have a great
5:01
couple of days and I'll see you next
5:02
week the paper's back on Tuesday of
5:04
course and cityam app and website will
5:07
keep you up to date and in the know 24/7
5:10
see you next week
5:15
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