Reeves has dodged a bullet but she’s surrounded by landmines
After all the excitement of a ministerial resignation, it’s time to check in on the government’s growth agenda. After all, the fate of individual politicians is of no significance when viewed against the major economic challenges facing the government, and the country.
Talking to City CEOs, particularly those in the pension and investment sectors, it’s clear that they like much of what this government is attempting to do.
There is a meeting of minds that goes like this: Starmer and Reeves have a particular view of business, based on the idea of ‘partnership’ and long-term strategic decisions. Bringing in deals worth billions, directing grand industrial and economic strategy, pulling big levers and planning big infrastructure projects all represent comfortable territory for Labour ministers. Boris Johnson was attracted to much the same approach. In the City, entire industries are based on exactly this approach.
Asset managers, pension funds and certain investors are therefore fully aligned with what passes for the government’s long-term economic strategy. For this reason, the City is home to perhaps the largest number of government supporters that it’s possible to find in the business community.
This dynamic isn’t unusual, but it’s made interesting by the fact that it’s so at odds with other parts of corporate Britain. In low margin, high headcount industries such as retail and hospitality, there is now a grim acceptance that the government’s more immediate policies (as opposed to the ones that won’t bear fruit for many years) will make life much more difficult.
Survey after survey reveals the extent to which prices will rise, pay will stagnate, jobs will be lost, costs will increase and profits will fall. These are the consequences of the Budget that economists are keeping a close eye on, even as inflation dips and gives the Chancellor some breathing space.
The fear is that it will climb again, perhaps as high as three per cent this year, which will in turn reduce the likelihood of rate cuts and prolong the stagnation that some fear has already taken hold. Reeves may have dodged a bullet with yesterday’s inflation figures but she’s still surrounded by landmines.
The government is banking on economic growth in the future, while choking it off in the present. It’s an extremely risky strategy which could leave them in a situation where the resignation of a minister is a pleasant memory when compared with an economic mess of their own making.