Chancellor Rachel Reeves in Kent (Image: Getty)
Rachel Reeves’s bombshell Budget has stifled economic growth and dampened business activity in the UK, a major report warns today.
October tax raid means GDP forecasts are lower than they were a year ago.
Furthermore, Labour’s employment reforms will hamper investment over the coming years.
The stark outlook is revealed in the latest data from the influential Centre for Economic and Business Research (CEBR).
Despite forecasting accelerating economic growth for the next couple of years, this will be at rates lower than previously predicted.
The CEBR expects GDP will grow by 1.3% in 2025 and 1.4% for 2026. But this is lower than the 1.9% and 1.6% predicted at the same time last year.
Its report says the weaker forecasts reflect the reaction to Ms Reeves Budget.
“These downward revisions largely reflect the expected responses to policy changes announced at the new government’s inaugural Budget, including changes to Capital Gains Tax and employers’ National Insurance Contributions,” the report says.
“Such changes are expected to dampen private sector activity, notably on the investment front.”
The details are set out today in the CEBR’s latest update of the annual World Economic League Table (WELT).
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The report also notes that the UK has fallen to 28th place in the IMD World Competitiveness Ranking in 2024, down from 23rd in 2022, suggesting that the regulatory environment has made the country less conducive to business activity.
In the longer term, the economy is expected to head towards a growth rate of 1.8%, the CEBR says.
This would see the UK economy retaining its WELT ranking of sixth over the next 15 years, a position it has occupied since 2021.
The US tops the table, with China (2), Japan (3), Germany (4), India (5), France (7), Italy (8), Canada (9) and Brazil (10).
The mediocre assessment comes just days after official ONS data revealed that growth has flatline, fuelling fresh warnings Labour is on the brink of sparking a recession.
In the first three months the party was in power, Britain’s economy did not grow at all.
This figure for July to September was a revised down estimate, after it was previously believed the economy grew 0.1% during this period.
The UK and Italy were the only G7 countries to register no growth in that time, performing significantly worse than rivals such as Germany, France and the US.
Earlier this week businesses accused Labour of driving the nation into a recession by creating a “hostile climate for aspiration, investment and growth”.
The Chancellor is also putting off businesses from hiring staff, the Confederation of British Industry said.
Inflation has also risen for the past two months, hitting 2.6% in November.
Richard Fuller, Shadow Chief Secretary to the Treasury, said the Chancellor is dragging the UK back to the “dark days” of the 1970s when the country was crippled by an underperforming economy and the Winter of Discontent.
“She appears to have taken the UK back to the dark days of the 1970s with her horror show budget,” he said.
“Her punishing jobs tax, death tax combined with Labour’s job destroying union charter seem intent on crushing businesses and wealth creators across the country rather than inspiring the best in Britain’s economy.”
A Treasury Spokesperson said: “After delivering a budget to stabilise the public finances we have wiped the slate clean, and can focus on delivering our Plan For Change which includes kickstarting economic growth though investment and reform.
“The OBR forecasts 2.0% growth in 2025 while the recent OECD upgrade will mean the UK is the fastest growing European economy in the G7 over the next three years.”
The CEBR’s report says ’s return to the White House and the possibility of US tariffs could have a major impact on the global economy, the report warns.
Christopher Breen, Head of Economic Insight, said: “This year’s report finds that the global economic outlook is subject to a number of new realities. Increased protectionism is here to stay, as it is becoming increasingly necessary to boost self-sufficiency and reduce political disenfranchisement.
“However, the world is at risk of over-adjustment toward wide-ranging tariffs that benefit nobody.”
By Richard Fuller, Shadow Chief Secretary to the Treasury
Rachel Reeves said all she wanted for Christmas is economic growth, but her gift to British people is low growth, higher inflation and crashed business confidence – a return of the dreaded “stagflation”.
She appears to have taken the UK back to the dark days of the 1970s with her horror show budget. Her punishing jobs tax, death tax combined with Labour’s job destroying union charter seem intent on crushing businesses and wealth creators across the country rather than inspiring the best in Britain’s economy.
Her cruel policy to snatch away winter fuel payments from vulnerable pensioners to lavish inflation busting pay rises for her union friends with no strings attached is rightly seen by the public as a morally wrong choice.
We all know governments don’t create growth, businesses do. So the best new year resolution of this socialist government is to get off the backs of british business. But don’t hold your breath – there’s barely a shred of business experience in the entire Labour cabinet.
Labour has only been in power for a matter of months, but the damage they have already done could take years to undo. Just this week, we have learned the economy is smaller than when Labour took over. It’s no wonder fewer than a quarter of businesses who publicly backed labour before the general election still stand by them.
This is a government of broken promises. Having promised not to tax working people when they needed their votes – they hiked the tax paid through work. Having promised not to touch inheritance tax before polling day, they went and did exactly that. And having promised not to fiddle the fiscal rules, they fiddled them to allow record borrowing.
The fruits of this approach are now becoming clear: no growth, higher inflation and record taxes.
No wonder Sir Keir Starmer has quietly dropped his pre-election pledge that the UK would have the fastest growth in the G7.
Starmer must make it his new year’s resolution to change course and support business generating growth. Or we will be here again next Christmas with Reeves doing nothing but hopelessly hoping for growth while families across the country pay the price for the damage she has done.