Rachel Reeves insists government has ‘right economic plan’ after UK growth beats forecasts in March – business live

Chancellor says UK is in ‘a stronger position’ to deal with the costs of the Iran war, and warns against putting economic stability at risk

Rachel Reeves has also suggested she’ll announce details of help with the cost of living crisis next week.

Speaking to BBC News this morning, the chancellor says:

Next week I’ll be setting out more detail on how, because of the numbers that we’ve seen today, we’ll be able to put more money in to support people – familes and businesses – with the conflict challenges that we know we’re facing.

GDP rose by a bumper 0.6% q/q in Q1 (consensus and CE forecast 0.6%), but this will be the high point for the year given the effects of the war in Iran will sap growth from Q2. In our baseline scenario, the economy doesn’t grow at all in Q2 and Q3. Prolonged political instability is an extra downside risk to our forecasts.

Risks remain clearly tilted to the downside moving forwards, principally as a result of the ongoing Middle East conflict, and subsequent surge in energy prices, which will in turn impact the economy in the manner of a significant negative demand shock, over the next couple of quarters.

Added to which, renewed political uncertainty in Westminster is also likely to act as a significant headwind to the economy at large, not only delaying major investment decisions, but with said uncertainty having also resulted in considerably tighter financial conditions as a result of the recent sell-off in Gilts across the curve.

“The UK economy outperformed in the first quarter of this year with growth reaching 0.6% quarter over quarter, despite being at odds with lacklustre survey indicators during this period. This continues the recent pattern of unexpectedly strong growth in the first quarter of the year, while stockpiling of some goods ahead of anticipated shortages arising from the Iran war lifted demand in March.

“Nevertheless, recession risks have risen, and we now expect the UK economy to contract mildly in the second and third quarters of this year. The main driver is a prolonged energy price shock pushing headline inflation above 4.0% in the coming months, and the resulting pressure on the Bank of England to raise interest rates to counter emerging “second-round” effects. Continue reading...