As information broke on Friday that Britain’s economic system had grown by a putting 0.5 per cent in February, effectively above analysts’ expectations, chancellor Rachel Reeves was having breakfast in Downing Avenue with economists.
The GDP bump was relayed to Reeves by an aide over WhatsApp, prompting the chancellor to surreptitiously reply with a “heart” emoji. “She was surprised, everyone was surprised,” mentioned one ally of Reeves.
For the chancellor, it was a welcome respite: an indication, maybe, that her autumn Finances’s £25bn employer nationwide insurance coverage “jobs tax” rise, which kicked on this month, had not had fairly the chilling impact many surveys had advised.
However Reeves was fast to notice this was solely a snapshot for a single month and that the Workplace for Nationwide Statistics knowledge coated a second in time earlier than US President Donald Trump unleashed his international commerce battle.
“The world has changed,” as Reeves put it on Friday morning. Her job is to make sure that indicators of a British financial spring will not be worn out by the icy winds blowing by way of the worldwide buying and selling system.
Reeves’ breakfast was a part of a collection of conferences this week to chart a means ahead for the economic system and to think about how one can defend these sectors most uncovered to the tariff disruption.
Her start line is that Trump’s 10 per cent baseline tariff — which hits Britain together with most different international locations — will most likely be in place for the foreseeable future, no matter commerce deal the UK may strike with the US.
Whereas ministers hope they will persuade Trump to chop the 25 per cent tariff on British automotive exports, Prime Minister Sir Keir Starmer warned this week that the US president’s commerce offensive was not “a passing phase”.
Starmer has promised to “turbocharge” present authorities plans — slightly than bringing ahead a collection of latest insurance policies — to cope with the brand new setting and Reeves can also be trying to velocity issues up.
Nonetheless, some Labour MPs imagine Starmer and Reeves have but to seek out the coverage response to match their dramatic rhetoric about “the end of globalisation”. One mentioned: “It’s all very well talking about it but where’s the action?”
Reeves’ allies converse of a four-pronged response — or “four buckets”, to make use of Treasury parlance — one in every of which incorporates the chancellor enjoying a world function in increase commerce alliances and defending free commerce.
Remarkably, Reeves is now the second longest serving G7 finance minister — after Italy’s Giancarlo Giorgetti — although she has solely been in submit for 9 months. The IMF and World Financial institution conferences in Washington later this month are seen as a key second.
Allies of Reeves declare she will play a convening function on commerce in the identical means that Starmer took a number one function in attempting to form a “coalition of the willing” to safe any peace deal in Ukraine. That initiative has, within the absence of peace, inevitably stalled.
The second aspect will see the federal government speed up selections across the public spending assessment and industrial coverage — each of which have been resulting from come to fruition in June — to help the economic system.
Reeves desires to make some bulletins within the coming weeks, together with settling components of the spending assessment — a “ground zero”, multiyear take a look at all Whitehall expenditure plans — forward of the June 11 deadline.
The spending assessment will deal with the £20bn of additional borrowing for capital expenditure allowed yearly below Reeves’ fiscal guidelines, set out final October, to help areas equivalent to transport infrastructure and vitality tasks.
“We don’t want to see this money just used to fix school roofs,” mentioned one ally of Reeves. “We want to invest in technology in the public sector. There’s a large amount of cash to invest in high growth areas.”
A 3rd “bucket” pertains to propping up sectors most affected by Trump’s tariffs, notably vehicles, life sciences and doubtlessly prescribed drugs — linked to the event of the commercial technique.
Ministers are additionally preoccupied with saving the metal business, which was laid low with structural issues earlier than Trump imposed a 25 per cent international tariff on US metal imports.
Emergency laws will likely be launched on Saturday to attempt to save the British Metal plant at Scunthorpe, the nation’s final blast furnace facility.
The issue, based on folks working carefully on the brand new industrial technique, is that it doesn’t measure as much as the dimensions of the worldwide change that’s happening — in Reeves’ favorite phrase — “before our eyes”.
One individual engaged on the technique, which is meant to deal with eight key development sectors, mentioned merely: “As it stands at the moment, it’s a complete red herring.”
Reeves’ staff insist the commercial technique isn’t all about cash — regulatory reform and the elimination of limitations to development are considered as crucial — however they’re conscious of being seen to pursue “Bidenomics” however with out the funds.
One ally mentioned: “Keir and Rachel see this as a priority. There’s definitely renewed energy going into the industrial strategy.”
The fourth a part of Reeves’ plan is to finish a US commerce deal, closely centered on nearer tech co-operation, though an “economic pact” with Trump doesn’t look like excessive on the White Home’s agenda for now.
Simply as politically tough is Starmer and Reeves’ try to develop nearer financial ties with Europe — a vital UK-EU summit takes place on Could 19 — constructing on a proposed pact to hyperlink up British and EU army capabilities.
Much more delicate is an try to construct up commerce hyperlinks with China, apparently hoping that Trump doesn’t discover. Douglas Alexander, commerce minister, was in China this week.
Reeves, who’s extra accustomed to receiving unhealthy financial information than good on her cellphone, now faces a vital few weeks as she makes an attempt to nurture towards the weather the “green shoots” glimpsed in February’s development figures.
