CP

Keir Starmer’s growth dreams have been left in tatters after Britain’s official economic watchdog slashed its forecast for next year – handing the Prime Minister and his Chancellor a massive pre-Budget headache.

The Office for Budget Responsibility (OBR) is set to halve its 2025 growth projection from 2 per cent to just 1 per cent, according to the Telegraph – a humiliating blow for Labour, which had staked its reputation on revving up the economy.

Chancellor Rachel Reeves is expected to try and pin the blame on global instability, including a resurgent Donald Trump and his new tariffs, when she delivers her Spring Statement next week.

But critics say Labour’s own policies are to blame – especially their massive £40 billion tax raid last October, the biggest tax-hiking Budget in 30 years.

The move included a widely slammed National Insurance hike on businesses, which has been directly linked to Britain’s worsening economic outlook.

Reeves is now poised to announce billions in spending cuts on Wednesday, in a bid to steady the ship. Whitehall departments could be staring down the barrel of austerity-style cuts, despite Treasury insiders insisting otherwise.

No new taxes are expected – though the Chancellor will squeeze extra cash from cracking down on tax dodgers. Officials say those extra revenues were crucial to stop Reeves from breaking her own fiscal rules.

The Chancellor is likely to tell MPs that “the world is changing”, blaming Trump, soaring debt interest and falling global forecasts. But her claims are already being undermined by business surveys showing confidence crashed long beforeTrump’s return to the White House.

A grim poll by the British Chambers of Commerce found two-thirds of firms were already fretting about Labour’s tax burden by January.

Mel Stride, the Shadow Chancellor, didn’t mince his words telling the Telegraph:

“Before the election, Labour promised ‘growth, growth, growth’ – but their anti-business Budget has killed growth stone dead.
The Chancellor has relentlessly talked Britain down, raised taxes to record highs and burdened businesses with extreme employment legislation.
With just six days until Labour’s emergency Budget, the Chancellor must think again.”

Things are getting tighter by the day. The downgraded growth prediction will pile pressure on Reeves to rein in spending – and has already triggered a Cabinet tug-of-war over where the axe should fall.

The OBR’s cut now brings its forecast in line with others such as the Bank of England who already halved its 2025 estimate last month – from 1.5 per cent to 0.75 per cent – and City experts had long warned the OBR was being too optimistic.

But the wider picture is looking bleak. Inflation is expected to creep up to 3.75 per cent by year’s end – still well above the official 2 per cent target – while interest rates remain stuck at 4.5 per cent. Businesses are freezing hiring and slashing investment, the Bank said Thursday.

Meanwhile, the NI hike on firms kicks in next month – with the aim of raising £25 billion. But this has stoked anger among business bosses with experts are warning it will backfire as they are already seeing a hiring freeze across the country.

According to the Telegraph, Reeves will try to explain the sluggish growth with poor productivity figures, and is expected to unveil new measures to boost output. But the spending blueprint for government departments won’t be finalised until June.

Back in her autumn Budget, Reeves pledged a 1.5 per cent real-terms rise in department spending. But with much of the cash front-loaded, later years are now looking increasingly tight. Experts say she may scale it back to 1.1 per cent, saving £5 billion a year – but inviting comparisons with George Osborne’s austerity era.

The Institute for Fiscal Studies has warned that unprotected departments face cuts on a scale “similar to austerity”. Treasury officials insist real-terms spending is still rising, and point to £40 billion in extra funding announced in the autumn.

But that’s unlikely to soothe Labour’s Left-wing MPs – or the public – if cuts start to bite.

The Spring Statement is shaping up to be a make-or-break moment for Team Starmer. And with growth flatlining, businesses angry, and the tax burden sky-high, voters may be wondering – where exactly is this new economy going?

Main Image: For illustration purposes only. Image created on Grok.

This article (Starmer and Reeves red-faced as economy stalls – with tax hikes blamed for the slump) was created and published by Conservative Post and is republished here under “Fair Use” with attribution to the author CP

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In this in-depth analysis, Tom Harwood breaks down the current state of the UK economy, exploring the challenges faced by Chancellor Rachel Reeves. From halved growth forecasts and increased borrowing to potential tax hikes and energy concerns, this video examines the factors contributing to the UK’s economic struggles and the implications of the upcoming emergency budget.

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