Growth figures give boost to Reeves – but it’s too early to get carried away | Economic growth (GDP)

At the end of last year, Rachel Reeves was under fire for the impact of budget speculation on the British economy. Before the end-November budget, all the noise about fiscal gaps, tax rises and spending cuts was having a real-world impact on the spending decisions of households and businesses.

So the latest official figures will be a boost for the Chancellor. The British economy grew stronger than expected, rising 0.3% in November, despite a fog of uncertainty ahead of a critical tax and spending speech at the end of the month.

Much of the increase was outside Reeves’ direct control. After manufacturing output was crushed by Jaguar Land Rover’s cyber attack in early autumn, a recovery was always expected. Factory production increased rapidly in November as production lines approached capacity.

There were signs elsewhere that budget speculation was negatively affecting production. Property activity fell in November as property owners and house hunters put things on hold while they awaited the outcome of the Chancellor’s tax decisions. Consumer-facing businesses have also struggled, in part because of the uncertainty that has shaken household confidence. However, Britain’s dominant service sector was stronger than expected despite these setbacks.

It is accepted that excessive speculation in the Treasury restricts growth. As a result, the Chancellor promised a simple spring declaration. Leaving a much wider buffer against fiscal rules and removing the requirement for the Office for Budget Responsibility to check compliance with them in the spring are all designed to limit the possibility of a repeat.

Having weathered this period of pre-budget speculation better than feared, Reeves’ hope is that the British economy can strengthen further in the coming months.

Polls so far show a small increase in December. The latest figures from the purchasing managers’ index, a closely watched barometer of business activity, show private sector output rising as firms put chaotic months of tax speculation behind them.

There are also positive winds. Inflation is expected to fall significantly, helped by Reeves’ budget measures. The Bank of England predicts the interest rate could fall as much as 0.5 percent, which would allow it to reach its 2 percent target by spring.

There are tentative signs that the labor market is stabilizing, workers are benefiting from real wage growth, and households are saving high levels. If consumer confidence improves, this could translate into stronger retail, hospitality and entertainment spending.

But economists say there are reasons not to get carried away.

Business leaders warn cost pressures remain high. The cumulative impact of rising minimum wages, tax increases, rising borrowing costs and past increases on all these fronts is likely to be severe. The Solution Foundation warned in its 2026 outlook that this could put an end to many so-called “zombie firms” that can barely keep paying the bills and lead to a sharp rise in unemployment.

Geopolitical concerns came to the fore. Donald Trump’s increasingly interventionist approach to world affairs could chill the world economy and business investment. Meanwhile, on the home front Labor has a tough round to overcome in the May election, raising the specter of new political instability.

November may be a stronger month than expected. But there is still much more work to be done before the Chancellor can lift the clouds over the UK economy in 2026.