NEXT month’s Budget will involve “difficult decisions” on tax, spending, and welfare, according to Chancellor Rachel Reeves. Speaking to the BBC, Reeves acknowledged the challenges her government faces, particularly following her controversial decision to cut Winter Fuel Payments for all but the poorest pensioners. Despite the backlash, she defended the move as the “right decision,” warning that further tough choices lie ahead.
Reeves’ remarks come at a time of concern over the UK’s economic performance, with new figures revealing that the economy failed to grow in July, following a flat performance in June. This stagnation is a setback for the government, which has prioritised economic growth as a key objective. Analysts had anticipated a modest growth of 0.2% for July, but those hopes were dashed, reflecting the broader economic challenges the country faces.
While Reeves tried to present an optimistic outlook for future growth, she emphasised the need for “belt-tightening” in the upcoming Budget, scheduled for 30 October. She stated, “I’ve been really clear that the Budget will require difficult decisions on tax, on spending, and on welfare. But the prize – if we can bring stability back to our economy, if we can bring investment back to Britain – is economic growth, good jobs, paying decent wages in all parts of our country, to realise the huge potential that we have.”
The Chancellor also highlighted the £22 billion “black hole” in public finances for this year, a figure that includes around £9 billion to fund above-inflation public sector pay increases. This fiscal shortfall has fuelled speculation about potential tax hikes or adjustments to the government’s debt targets. These fiscal rules, which the government imposes on itself to manage borrowing over a five-year period, could be revised to give Reeves more flexibility in her tax and spending plans. So far, she has not ruled out such changes.
The lack of growth in July has also impacted tax revenues, as the Treasury missed out on the potential boost that stronger economic performance could have provided. Despite the disappointing figures, Liz McKeown, Director of Economic Statistics at the Office for National Statistics (ONS), noted that “longer-term strength in the services sector meant there was growth over the last three months as a whole.” This growth was driven by sectors such as computer programming and healthcare, which saw a recovery from strike action in June. However, advertising, architecture, and engineering sectors experienced a decline in output, and car and machinery firms had a “particularly poor” month, according to McKeown.
While the ONS monitors GDP on a monthly basis, more emphasis is typically placed on the three-month trend to gauge the economy’s performance. Although the UK economy fell into a shallow recession at the end of last year, with no growth over two consecutive three-month periods, the first half of 2024 saw a return to growth. Ruth Gregory from Capital Economics remarked, “The economy stagnated in July… but that doesn’t mean the UK is on the cusp of another recession. And we can take some comfort from the fact that services output rose by 0.1% month on month.”
The ONS also reported that retailers and hospitality venues saw increased business in July as the England men’s football team advanced in the European Championships. Gillian Fletcher, General Manager for Spinningfields, a company managing food and drink venues in Manchester, said that screening events like the Euros, Wimbledon, and the Olympics had attracted customers. “It’s not that people don’t want to spend money or they don’t want to go out. It’s just the economic landscape has changed,” she said. “We’ve had a really, really great year and summer… and that’s proof that if you’ve got the right recipe, people will come.”
However, not all businesses benefited from the summer events. Some restaurants reported a drop in footfall due to the football tournament, and despite some travel agents seeing a rise in bookings due to the Paris Olympics, overall bookings fell month on month, according to the ONS.
