£10,000 worse off: Why upbeat Chancellor cannot hide grim reality of UK economy

Britain’s economy has struggled to grow ever since the 2008 financial crash

Rachel Reeves has taken a fair bit of flak for ‘talking the economy down’ because of her repeated remarks about the terrible state of the economy bequeathed by the Conservatives. So perhaps when delivering her Spring Statement – dubbed an “emergency budget” by Shadow Chancellor Mel Stride – she could be forgiven for trying to sound upbeat.

However, given she was confirming billions of pounds of benefit cuts, perhaps a more sombre tone would have been appropriate.

Despite the halving of the Office for Budget Responsibility’s growth forecast for this year, from 2 to 1 per cent, the Chancellor took considerable comfort from predicted increases for the following years. However, it would hardly be a surprise if those forecasts were similarly downgraded.

Chancellor Rachel Reeves gives a press conference after delivering her Spring Statement to the Commons (Picture: Ben Stansall/WPA pool) | Getty Images

Even in good times, predicting our economic future accurately is difficult and we live in an increasingly volatile world, with the economically illiterate Donald Trump throwing around tariffs, Vladimir Putin stalling on Ukraine peace talks and China seemingly planning an invasion of Taiwan.

What matters is actual growth and, on that front, the UK has been doing badly since the 2008 financial crash. Economist Paul Johnson, director of the Institute of Fiscal Studies, told the Rest is Politics podcast that “had we grown since then at the kind of rate we were used to for the previous 50 years, average earnings would be about £10,000 a year higher than they are now”. Let no one tell you that economic growth is not important.

The benefit cuts were partly motivated by the need to increase defence spending and also to enable Reeves to stay within her fiscal rules, which include a requirement that day-to-day spending is covered by taxation. This may sound trivial to some but such rules are important in maintaining credibility with the markets.

With Reeves’ somewhat boxed in by circumstance, the state of the economy and those rules, her options were rather limited. And, despite her smiles as she finished her Commons speech, there’s no hiding the fact that the UK economy remains stuck in a grim situation – and one that global events may make even worse.