London (AFP) – The UK government halved its 2025 growth forecast on Wednesday as it made billions of pounds of spending cuts to shore up the public purse in the face of economic headwinds. The Spring Statement spending update came as the Labour government, elected in July after a landslide election win, faces sluggish economic growth and rising borrowing costs. Britain’s economy is expected to grow by just one percent this year, revised down from an estimate of two percent made in late October when Labour presented its inaugural budget. However, the Office for Budget Responsibility, the UK’s spending watchdog, upgraded the country’s growth forecast for the three following years.
“Our task is to secure Britain’s future in a world that is changing before our eyes,” finance minister Rachel Reeves told parliament in the highly-anticipated update. Concerns over US tariffs and the war in Ukraine have added to the UK’s economic woes, chipping away at the government’s fiscal cushion. “The threat facing our continent was transformed when (Russian President Vladimir) Putin invaded Ukraine,” Reeves said. She added that “the job of a responsible government is not simply to watch this change; this moment requires an active government.”
Prime Minister Keir Starmer recently pledged to hike spending on defence, with the government Wednesday confirming a £2.2 billion ($2.8 billion) boost next year. To avoid deepening the deficit, Reeves has cut disability welfare payments and government departmental budgets, blaming a period of heightened uncertainty in global markets.
Outside parliament Wednesday, about 200 protestors, many using wheelchairs, chanted “fund welfare not warfare,” noted an AFP journalist. The centre-left government hopes contested cuts to disability welfare payments will help it save billions annually by the end of the decade. Ahead of Wednesday’s update, it also unveiled that it would slash the cost of running the civil service by 15 percent over the next five years, targeting annual savings of around £2 billion. While Labour has highlighted increased funding for housing, the struggling National Health Service, and reforms to workers’ rights, it is the spending cuts that have taken the spotlight. The cuts added to criticism piled on Labour after it scrapped a winter-fuel benefit scheme for millions of pensioners last year. Higher business tax comes into effect from April, pressuring businesses who are also facing a hike to the minimum wage.
“There were no big surprises in this statement,” commented Susannah Streeter, head of money and markets at Hargreaves Lansdown. “Stability is right at the cornerstone of the government’s agenda, and she appears to have done the trick of not unnerving investors further.” In a glimmer of good news, official data showed Wednesday that Britain’s annual inflation rate eased to 2.8 percent in February, down from 3.0 percent in January. But despite the slowdown, inflation remains elevated above the Bank of England’s two-percent target. The central bank kept interest rates unchanged last week after a series of cuts, warning of “economic uncertainty.”
Reeves’s attempts to mend public finances have been constrained by her own fiscal rules and her pledge not to increase taxes. The rules prevent her from borrowing to fund day-to-day spending and call for debt to fall as a share of the gross domestic product by 2029-2030. Mel Stride, finance spokesman for the main opposition Conservatives, said it was a “public humiliation” that Reeves has come close to breaking those rules.
© 2024 AFP
