“Is that it?” said a sneering Mel Stride, the Tory shadow chancellor, in the House of Commons chamber following Tuesday’s spring economic statement by his opposite number in government, Labour’s Rachel Reeves.
Behind him, the jeers from opposition benches reached a crescendo after Reeves’s low-key statement, which was more about avoiding pitfalls than taking bold fiscal initiatives. She announced a dip in growth for the year ahead, alongside a projected fall in inflation.
Stride dismissed the spring statement, which is essentially just a set of economic estimates, as “a surrender statement by a chancellor in denial” – Labour’s pre-election promise to lift the UK economy has so far struggled to keep pace with reality.
Yet there was something else hanging over proceedings, more so than the hot air billowing off the Tory benches. War in the Middle East threatened to render Reeves’s figures out of date before she had even delivered them.
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Reeves said the Office of Budget Responsibility (OBR), the fiscal watchdog that marks the UK government’s economic homework, had downgraded growth for the year to 1.1 per cent from 1.4 per cent, buttressing Tory claims that Labour’s economic stewardship had stalled.
UK unemployment is forecast to peak this year at 5.3 per cent, up from the 4.9 per cent forecast at the budget last autumn. Yet, Reeves argued, growth should pick up to 1.6 per cent in the following two years, while joblessness should fall.
[ The impact of the Middle East war on the world economy in three graphsOpens in new window ]
“This government has restored economic stability,” she said, defiantly. The Tories almost fell off their green benches with laughter.
It emerged later at a briefing with Treasury officials that the spring statement figures were based on oil costing no more than $70 (€60.47) per barrel and gas at 90p (€1.03) per therm. Yet, as the chancellor took to her feet, oil was $83.50 and gas was 130p, as worries deepened over supplies from the Middle East
Jeremy Hunt, the last Tory chancellor, said when he ran the Treasury, the rule of thumb was a 20 per cent rise in energy prices equalled a single percentage point rise in inflation. Oil was 19.2 per cent ahead this week, while gas was 40 per cent higher.
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The OBR’s projections, and Reeves’s subsequent sums, may need to be completely redone following the attack on Iran by the US and Israel.
Reeves’s promise that people in Britain would be £1,000 better off by the end of the current parliament in 2029 looks to be on shaky ground.
Labour sources said afterwards that Reeves will on Wednesday meet in London with the chief executives of all of the big UK oil and gas companies. They didn’t say what those executives could possibly do about the geopolitical clashes driving market prices.
The Henry Jackson Society, a right wing think tank, said “geopolitical instability is now a direct fiscal risk to the UK”.
The left-leaning Institute For Public Policy Research, meanwhile, warned that falling net migration – a key political aim of the Labour government – posed “a medium term risk to the public finances”.
Stride’s barbs aside, Reeves got through her spring statement without too much else of note.
That may have been the best she could hope for in the current, volatile climate.
