Britain’s Economy Struggles to Match Global Ambitions
Britain’s Finance Minister Rachel Reeves has just set out her budget plans for the next four years. “The renewal of Britain must be felt everywhere,” she said. Her Labour government has been in power for just one year, since a landslide general election victory, when the public expressed their great dismay at the economic mismanagement of the previous Conservative government.
Reeves said that Britain’s ailing public health system would receive a three per cent real-terms rise in daily spending and that defence spending would increase to 2.6 per cent of GDP by April 2027 from 2.3 per cent now. She promised an additional 39 billion pounds to build over the next 10 years housing for those who cannot afford to buy or rent at market prices.
All this is music to the ears of those who voted for Labour and its promises to improve health and housing. But the question economists are asking is whether the government will have the money to pay for all this.
In 2024, the UK’s GDP grew an annual 1.1 per cent, up from 0.4 per cent in 2023. In the first quarter of 2025, it grew 1.1 percent and fell 0.3 per cent in April. For the full 2025, the Office of Budget Responsibility forecasts one per cent growth. Rob Morgan, chief investment analyst at Charles Stanley, a British investment management company, said that UK growth would be well below what the government wants it to be.
During the last 15 years, Britain has had the lowest GDP growth among G7 nations. The Institute for Fiscal Studies said in a report in 2024: “Britain’s relative lack of growth in the last fifteen years can be explained by a decline in productivity. Productivity is defined as the average output produced for each hour of work done in the country. Much like GDP, productivity in the UK has stagnated in an unprecedented way: in the 35 years before 2008, productivity doubled. In the 15 years since, it has gone up by five per cent.”
The main reasons for this were low investment, the Brexit decision in 2016 and the war in Ukraine, which increased energy prices. Things have worsened with the arrival of President Donald Trump in January this year. He has imposed tariffs of 10 per cent on imports from Britain and greatly reduced U.S. support for Ukraine in fighting the Russian invaders. This has forced European nations, including Britain, to increase defence spending, something they had not anticipated before the war.
National debt is another concern. According to official figures, Britain’s debt reached 89.6 per cent of GDP at the end of April this year. That compares with 62.5 per cent in Germany, 43.3 per cent in Holland and 33.5 per cent in Sweden.
When it took power in July 2024, the new Labour government promised a tax lock for working people – a pledge not to raise rates of income tax, national insurance or VAT. It promised a cap on corporation tax at 25 per cent, a National Wealth Fund to invest in industries for the future and a Great British Energy to accelerate the transition to clean power, with 650,000 in industries of the future. It also promised 1.5 million new homes.
All these are attractive but, with annual growth of only one per cent, impossible to achieve. Take a high-speed railway line between London and Birmingham, a distance of 118 kilometres, under construction since 2019. It was originally to run to Manchester and Leeds in the north of England but these routes were cut because of cost. Most of the project is due to be completed by 2033. It will be only the second high-speed line in Britain, after the English part of the Eurostar to Paris that runs from London to Dover, a distance of 108 km.
By comparison, the major countries of Europe have thousands of kilometres of high-speed railway. Spain leads with more than 3,900 kilometres, second in the world to China.
The lack of growth threatens Britain’s place in the world. That is the conclusion of a new book “Can We Be Great Again? Why a Dangerous World Needs Britain” by Jeremy Hunt, who served as Foreign Secretary and Finance Minister in the last two Conservative government. “My definition of a great country is one that is capable of shaping the world and not just being shaped by it,” he wrote.
Maintaining its status depends on a strong economy, he wrote. “If Britain does not get its economy growing strongly again, irrelevance and possibly bankruptcy await.”
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