The UK economy is ‘flashing red’ after growth slowed to 0.3 per cent between April and June, it was claimed this morning.
The Office for National Statistics announced that the gross domestic product increased by 0.3 percent for the quarter, following a 0.7 percent growth in the first three months of the year.
Rachel Reeves was told that even ‘snails would scoff’ at the pace of growth in the UK economy, as the Chancellor was blasted for her ‘economic vandalism’.
She also faced fresh warnings that she will need to plug a £50billion spending hole at her next Budget this autumn, which has left households braced for more tax hikes.
Despite the gloomy outlook, Ms Reeves praised the figures as a ‘positive’ sign for the country and a ‘strong start’ to the economic year.
The growth figure was stronger than the 0.1 per cent widely expected by economists after an uptick in activity in June and revised data for earlier in the quarter.
The latest ONS figures showed the UK economy grew by 0.4 per cent in June, following a contraction by 0.1 per cent in both April and May.
But there are expectations among economists of continued subdued growth in the third quarter of the year.
Rachel Reeves was told that even ‘snails would scoff’ at the pace of growth in the UK economy, as the Chancellor was blasted for her ‘economic vandalism’
The National Institute of Economic and Social Research think tank pointed to its recent warning that Ms Reeves faces a £51billion black hole in the public finances.
It found that the ‘wafer thin’ headroom of £9.9billion Ms Reeves left herself last year has been wiped out, and there is now a budget deficit of £41.2billion.
To fill the hole and maintain the buffer, the Chancellor will have to find £51billion annually in higher taxes or lower spending by 2029/30.
This has sparked claims that Ms Reeves and her Treasury officials are eyeing an inheritance tax raid, a fresh increase in the capital gains tax rate, and further ‘stealth’ and ‘sin’ taxes.
Mr Jiminez-England, associate economist at NIESR, said: ‘GDP growth was slightly higher than forecast, recording 0.4 per cent in June owing to stronger-than-expected growth in services and construction.
‘The economy therefore grew by 0.3 per cent in the second quarter. Despite this positive surprise, we expect growth to remain subdued in the third quarter of this year as uncertainty over fiscal policy and international trade continues to weigh on economic activity.
‘As outlined in our recent UK economic outlook, the Chancellor must build a substantial fiscal buffer in the autumn Budget to avoid uncertainty plaguing growth into next year.’
Tory MP Sir Mel Stride, the shadow chancellor, warned that Ms Reeves would be ‘taxing your future to fund her failure’.
‘Any economic growth is welcome,’ he said in response to this morning’s GDP figures.
‘But with business leaders saying that all indicators are flashing red – and key economists are warning that Rachel Reeves has created a £50billion black hole in the public finances – the Chancellor’s economic vandalism is clear.
‘Under Labour, we have already seen taxes hiked, inflation almost double, unemployment rise, and growth stagnate.
‘Looming tax rises will only make things worse and working people will pay the price.’
Liberal Democrat MP Daisy Cooper, the party’s Treasury spokesperson, said: ‘Snails would scoff at the pace that our economy is growing.
‘Businesses are being crushed under the weight of the Government’s jobs tax, spiralling energy costs and reams of red tape, all holding down wages and the growth needed to rebuild our public services.’
Ms Reeves, who has been blamed for choking off growth with her National Insurance hike on firms, admitted herself there was ‘more to do’ to fire up the UK economy.
‘Today’s economic figures are positive with a strong start to the year and continued growth in the second quarter,’ the Chancellor said.
‘But there is more to do to deliver an economy that works for working people.
‘I know that the British economy has the key ingredients for success but has felt stuck for too long.
‘That is why we’re investing to rebuild our national infrastructure, cutting back on red tape to get Britain building again and boosting the national minimum wage to make work pay.
‘There’s more to do and today’s figures only fuel my ambition to deliver on our plan for change.’
The ONS found growth in June was boosted by a ‘strong’ performance for scientific research and development, engineering and car sales.
Within the production sector, there was a strong growth in the manufacturing of electronics.
Liz McKeown, ONS director of economic statistics, said: ‘Growth slowed in the second quarter after a strong start to the year.
‘The economy was weak across April and May, with some activity having been brought forward to February and March ahead of stamp duty and tariff changes, but then recovered strongly in June.
‘Across the second quarter as a whole, growth was led by services, with computer programming, health and vehicle leasing growing.’
Sanjay Raja, Deutsche Bank’s chief UK economist, said: ‘Against wide expectations that the economy would just about stall in the second quarter, the UK economy surpassed our forecasts yet again.
‘Underneath the surface though, there’s much to be desired. The biggest contributor to GDP growth came via government spending.
‘What disappointed? For starters, household spending – the growth engine of the UK economy nearly stalled, coming in at a paltry 0.1 per cent quarter-on-quarter.’
