Rachel Reeves argued that the UK did not need to fall into a recession in order to bring inflation back down to target, countering claims from the government that higher interest rates were to blame.
“I don’t buy this argument that you need to have a recession to get inflation down,” the shadow chancellor said at a press conference.
“Other countries are doing an awful lot better at controlling inflation whilst also managing to grow their economy, which is the point that I made about Britain being acutely exposed to the challenges that we face,” the Labour top brass continued.
Her comments came after new figures confirmed that the UK fell into a shallow recession in the second half of last year. GDP contracted 0.3 per cent in the final quarter of the year, exceeding economists’ expectations of a smaller 0.1 per cent fall. The Bank of England expected output to be flat.
“These were worse numbers than economists were predicting,” Reeves said. “This is a recession. But we didn’t need to get these numbers for us to know that families are struggling through an enormous cost of living crisis and businesses are struggling as well,” she said.
The Chancellor, Jeremy Hunt, placed a large portion of the blame on the Bank of England’s interest rate hikes. The benchmark Bank Rate stands at 5.25 per cent, having been hiked from 0.1 per cent in late 2021 in an attempt to bring down inflation.
Higher interest rates slow the economy by raising the cost of borrowing.
“Whilst interest rates are over five per cent, the highest in 15 years, of course growth is going to be weaker here like it is in many other countries,” Hunt said.
The UK has performed roughly in line with European peers, where growth was more or less stagnant across 2023. Figures out this morning confirmed that Japan fell into a recession too.
The US, on the other hand, has grown remarkably quickly in 2023 despite the impact of higher interest rates.
Pressure is likely to grow on the Bank of England to cut interest rates following the news, although earlier this week Andrew Bailey said he would not “put too much weight” on the figures.
The pound was trading 0.13 per cent lower at $1.255 as traders assessed whether rates would be cut sooner to support the economy.