Rachel Reeves has signalled taxes will still rise despite official figures showing Britain’s “gangbusters” economy grew faster than any other G7 nation this year.
The British economy expanded by 0.6pc in the three months to June, in line with economists’ expectations and following an expansion of 0.7pc in the first three months of the year, the Office for National Statistics (ONS) said on Thursday.
It means UK growth has outpaced every other major advanced economy so far this year, growing by 1.3pc in the first six months of 2024. This is ahead of the US, where growth was 1.1pc and more than double the 0.6pc expansion in France over the same period.
By contrast, Germany has barely grown this year, expanding by just 0.1pc, while the figures for Italy and Canada were 0.5pc and 0.9pc respectively.
Despite the good news, the Chancellor hinted tax rises were on the way in her maiden Budget on Oct 30, as ministers refused to say how Labour would pay for a 15pc pay rise for train drivers announced on Wednesday.
Commenting on the GDP data, Ms Reeves said: “The new Government is under no illusion as to the scale of the challenge we have inherited after more than a decade of low economic growth and a £22bn black hole in the public finances.
“That is why we have made economic growth our national mission and we are taking the tough decisions now to fix the foundations, so we can rebuild Britain and make every part of the country better off.”
Jeremy Hunt hit back at Ms Reeves, with the shadow chancellor describing the economic performance as “further proof that Labour have inherited a growing and resilient economy”.
Public sector pay rises worth £9.4bn form part of Ms Reeves’s “black hole”. This figure does not include an estimated £1bn that she will need to find to fund a 22pc pay rise for junior doctors.
Mr Hunt added: “The Chancellor’s attempt to blame her economic inheritance on her decision to raise taxes – tax rises she had always planned – will not wash with the public.”
Ms Reeves has already warned of “tough decisions” in her maiden Budget this autumn, including on welfare.
“If you can work, you should work,” she said after official figures showed worklessness in Britain rose to its highest level in more than a decade.
The country’s strong economic performance was achieved despite the economy flatlining in June. Yael Selfin, of KPMG, described it as “another gangbusters quarter”.
Thursday’s figures mean the economy continued to outperform France, Germany and Italy in the second quarter of 2024, though economists said some of the bounceback was because Britain fell into a mild recession at the end of 2023.
Germany, Europe’s biggest economy, shrank 0.1pc in the three months to June, while the French economy grew 0.3pc and Italy expanded by 0.2pc. The wider EU grew 0.3pc.
Liz McKeown, director of economic statistics at the ONS, said the second quarter growth was led by Britain’s dominant services sector, with activity at law firms, IT businesses and scientific research driving the expansion.
She said the economy had now “grown strongly for two quarters, following the weakness we saw in the second half of last year”.
By contrast, Germany continues to teeter on the brink of recession, with declining investment and persistent weakness in manufacturing following Russia’s invasion of Ukraine damaging consumer sentiment.
Economists agreed that Ms Reeves had inherited a buoyant economy.
Jake Finney, an economist at PwC, said: “The latest growth statistics provide more evidence that the economy is gradually turning a corner as the new Government takes office.”
However, Britain’s growth has also been flattered by surging immigration.
The figures showed the economy grew at half the pace when adjusted for population size, with GDP per head rising 0.3pc over the quarter. This is slower than growth per head in the US but this builds on a strong 0.5pc expansion in the first three months of the year.
Mr Finney warned that the Government had to fix the worklessness crisis in order to grow the economy.
He added there was “some way to go” to meet its “ambitious target to become the fastest-growing G7 economy on a sustained basis”.
Sir Keir Starmer has said he wants to achieve the highest G7 per-capita for two consecutive years before the end of the decade.
Mr Finney said: “It will be difficult for the Government to achieve that without addressing the post-pandemic rise in economic inactivity.
“Our analysis indicates that reincorporating this group into the workforce could boost economic growth by as much as a quarter of a percentage point a year, if done over a 10-year period.”
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