Strong growth data is a mixed blessing for Labour

Britain achieved the strongest growth of all G7 nations in the first half of this year, after new GDP data out today confirmed, in the widely cited words of KMPG’s chief economist, “another gangbusters quarter”.

The UK economy grew by 0.6 per cent in the three months to June, in line with economists’ expectations, following another strong expansion of 0.7 per cent in the first three months of 2024. Meaning Britain is firmly out of the recession which it entered at the end of last year, after the economy shrank for two consecutive quarters. 

Growth was led by the services sector, with production in scientific research, the IT industry and activity in law firms driving the expansion in particular. 

There are some caveats to this good news. As Maggie Pagano addresses in her column today, the ONS figures also reveal that the number of individuals out of work in Britain has risen to its highest level in over a decade, with an especially concerning rise in the number of teenagers claiming disability benefits. 

Even so, today’s GDP figures are welcome, and come alongside other encouraging data this week revealing falling unemployment and wage growth levels in addition to better-than-anticipated inflation figures. 

One would expect a government to be shouting rather loudly about this unusually sunny week of economic news. 

Why, then, does Britain’s Chancellor sound so glum?

“The new government is under no illusion as to the scale of the challenge we have inherited after more than a decade of low economic growth and a £22bn black hole in the public finances,” said Rachel Reeves today. 

“We are taking the tough decisions now to fix the foundations, so we can rebuild Britain and make every part of the country better off,” she added. 

The reason for her downbeat tone is that this economic news is something of a mixed blessing for Labour. 

On the one hand, any good news on GDP is music to Labour’s ears. Reeves’ pe-election pledges have given her very little fiscal headroom, leaving the government hugely dependent on getting the economy growing again. 

What’s more, Sunak’s poorly timed decision to call a general election will no doubt allow Labour to take some credit for the improved economic picture, despite today’s growth figures only taking us up to the end of June. 

So far, so good for Labour. So what’s the problem? 

Reeves is preparing to deliver her maiden Budget on 30 October. And the “tough decisions” she spoke of again today suggests we can still expect tax hikes and public spending cuts to feature. 

Her justification for announcing these unpopular measures in the budget will be the dire economic situation she has inherited from the outgoing Conservative government. 

Yet this week’s strong economic data will make it that bit harder for Reeves to convince the public that the Tories have left the public coffers in a terrible state, and are to blame for any spending cuts or tax hikes to come. 

Reeves’ predecessor wasn’t about to miss a chance to remind her of this. Today’s GDP figures “are yet further proof that Labour has inherited a growing and resilient economy,” gloated Jeremy Hunt.

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