3 March 2025 - 4:30pm
Today’s latest report from the Confederation of British Industry will do nothing to cheer up Rachel Reeves. The Chancellor of the Exchequer is already under pressure from her own caucus over the spending cuts she’s been forced to make in order to stick to her self-imposed fiscal rules and tax pledges. Her hope for a get-out-of-jail-free card from rising economic growth looks increasingly fanciful, with the CBI reporting that business expectations for the coming quarter are down sharply, driven by weak consumer expectations. All told, the CBI expects private sector activity to fall for yet another quarter.
In other words, the economy continues to bump along bottom with few signs of renewed vigour. If it’s any consolation, Britain is far from alone in its predicament. Few of the developed economies are growing much at all and those which are, such as Greece and Spain, tend to be the countries that took the biggest falls back in the 2011 euro crisis, so to some extent they’re just making up lost ground. As for the supposed star performer of the developed world, the recent growth of the United States has been driven by a surge in debt that has risen faster than the economy itself, a model which has an obvious sell-by date which may arrive soon.
There are still a few glimmers of hope. The CBI report did find that manufacturing is growing. Paradoxically, the threat of a European war, as Donald Trump threatens to withdraw his country’s backstop for the continent’s security, may provide further support to the manufacturing rebound, since orders for guns and ammo are expected to boom. And Britain’s stock market, like those of other European countries, appears to be profiting from the apparent rotation out of US shares, as the American market rally peters out. Whereas the S&P500 index is up by barely a percent since the start of the year, the FTSE100’s gain is now approaching double digits.
Still, it’s hard to see where much future economic growth will come from. As symbolic as manufacturing may be to a country’s sense of productivity, Britain’s is a service economy, and that’s a sector the CBI expects to remain in the doldrums. Meanwhile, although the country’s leading business lobby is consequently calling for more Government action to rev up growth, it’s hard to detect much direction from Downing Street. The Chancellor insists she will stick to her fiscal rules and the ill-advised pledges she made during last year’s election not to raise most taxes.
Her promises to nevertheless boost infrastructure and social spending were already looking financially stretched, and depended on a favourable economic wind which never blew. Since she delivered her autumn Budget, the fiscal backdrop has worsened and the geopolitical environment has grown more fraught, forcing the Prime Minister to pledge an increase in the defence budget — which he said will nonetheless be done without raising spending. While the sums on cutting aid to fund defence just about add up, few see this as a serious long-term solution.
If the Chancellor won’t return to Parliament with a more realistic long-term budget plan, the Prime Minister may eventually have no choice but to replace her. If he doesn’t, and if the Government continues to hope that growth will somehow come riding over the mountain to rescue them, investors and consumers may well decide to keep their wallets closed until a more plausible future appears.
John Rapley is an author and academic who divides his time between London, Johannesburg and Ottawa. His books include Why Empires Fall: Rome, America and the Future of the West (with Peter Heather, Penguin, 2023) and Twilight of the Money Gods: Economics as a Religion (Simon & Schuster, 2017).
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