Donald Trump is about to make things even tougher for Rachel Reeves.
In February, the UK economy unexpectedly grew by 0.5%, which was the best result since Rachel Reeves became Chancellor. For the first time in a while, people couldn’t accuse her of stopping growth which was probably a nice change for her.
Although the Conservative government had made a mess of the economy, they still left Labour with one that was starting to grow. In the first half of 2024, the economy went up by 1.2%. Even the usually serious Office for National Statistics seemed excited, saying the country was doing really well.
But then Reeves warned the public about a £22 billion hole in the government’s budget and said tough times were coming. That warning led to the economy shrinking by 0.1% in January, and many blamed her for slowing things down.
Then February came and the economy bounced back. However, this growth was mainly due to the government spending more money, not because of strong business performance. And unfortunately, things are expected to get worse again.
The February growth figures were recorded before Reeves’ new tax increases came into effect in April. One of the biggest ones is a £25 billion rise in employer National Insurance contributions, which could put pressure on businesses and jobs.
On top of that, Donald Trump’s trade policies are about to hit the UK hard. His decision to raise taxes on imports including a 10% tax on everything coming into the US, and up to 145% on goods from China could shake the global economy. These kinds of tariffs make products more expensive, which could push up inflation.
If inflation rises, interest rates will likely stay high. That means it will be more expensive for people and companies in the UK to borrow money. British manufacturers might also suffer if Chinese companies start flooding the UK with cheap goods that they can no longer sell in America.
This situation is already bad, but it could get worse. The National Insurance increases were already expected to cause huge job losses, and Trump’s actions could lead to even more problems.
Borrowing money is becoming more expensive for the UK government too. The cost of long-term borrowing has reached its highest point since 1998. This puts even more pressure on Reeves’ financial plans.
In her Spring Statement, Reeves tried to cut some spending to save money, but with growth slowing again and borrowing costs rising, she will be forced to make hard decisions later this year. That likely means more tax rises and more cuts to public services.
Reeves might blame Trump for some of the trouble, but not all of it is his fault. Unless Trump changes course completely, the UK could be heading into another economic crisis. Right now, only the financial markets might be able to help.
Even if Reeves has her reasons, they won’t make things any easier for people. Her next budget in October looks set to be extremely difficult more taxes, less spending, and fewer options. If the global situation doesn’t improve soon, it’s ordinary people in the UK who will suffer the most.
