The Bank of England has reduced its economic growth forecast for the UK over the coming year from 1.5% to 0.75%. Forecasts of this type are always uncertain, but a mere 0.75% growth in the first full year of our new Labour government’s term in office would be very disappointing. Prime Minister Keir Starmer and his Chancellor Rachel Reeves have both stated that growth in the economy is their key policy objective, but the Bank of England for one does not appear to believe they are making headway.
The UK is by no means alone in struggling to enhance growth. EU countries including France and Germany, as well as Canada in the G7 group of countries are facing a similar problem. Growth in productivity continues to be minimal and the confidence of UK companies has been badly dented by a large increase in national insurance costs due to take effect in April this year. In addition, the boost to spending that UK consumers received in the form of energy subsidies and ‘winter fuel payments’ for the elderly during the period up to the end of 2023 has come to an end, reducing disposable incomes for a large proportion of the population. I for one received a payment of £500 in November 2023 (a combination of the £200 winter fuel payment and a special payment of £300 to help with energy costs) – but nothing in 2024. I am not complaining about this and indeed supported the government’s decision to restrict the availability of the winter fuel payment. However, there are around eight million people in the UK over pension age who no longer receive these payments. Meanwhile, energy costs remain high and we are now in the period of maximum annual consumption. It is no wonder that consumer spending in the UK is flagging, despite incomes rising above inflation for those in work. At the same time many younger people in the UK are struggling with high rent and mortgage payments plus the repayment of student loans.
Why we need more growth
The reason we need more growth in the economy, however, is not to enable the government to provide more subsidies or special payments to the elderly or others in receipt of benefits. We need growth primarily because the public has high expectations in terms of the services it expects to receive in areas such as health care (NHS), education and policing/administration of justice. We also clearly need to spend more on defence at a time when EU countries and the UK are increasingly threatened by Russia and it appears we can no longer rely on the United States to the extent we have done up to now. We can only receive the high quality services we want while spending more on defence if we have substantial extra growth to pay for it.
The risk of absolute decline
A further risk is that a stagnating economy may actually tip into outright decline. There seems to be little or no consciousness of this risk in the UK, but it must be a possibility. If that happens it would result in higher taxes plus year on year reductions in real incomes, public services and benefits, putting huge pressure on social stability in the UK. We really cannot afford to take this risk.
A way forward
Our new government has been too timid. It needs to act with much more urgency and press harder on two key policy levers:
- Reductions in planning constraints to encourage building and development of all types; and
- Significant improvements in, and not just ‘resetting’, of our trading relationship with the EU.
There has been some progress. The government has recently affirmed its commitment to go ahead with the much needed building of a new runway at Heathrow airport, plus enable the construction of new nuclear power stations. But we need much more than this to kickstart sustained growth.
Michael Ingle – michaelingle01@gmail.com
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Michael Ingle - Interesting Times 
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