(qlmbusinessnews.com . Sat 20th Sep, 2025) London, UK —
Chancellor Reeves Under Pressure: November Budget Could See Tax Hikes to Spur UK's Stagnant Economy
In July, the UK's economic momentum hit a standstill with no growth observed, following a significant downturn in manufacturing, marking the most considerable drop in output in a year, as reported by the Office for National Statistics (ONS). This stagnation came after the economy expanded by 0.4% in June, aligning with forecasts.
Recognizing the volatile nature of monthly data, the ONS has shifted its focus towards a three-month rolling growth period, which saw the economy grow by 0.2% up to July.
With the Budget announcement looming on the 26th November, the government faces intense scrutiny to boost economic growth, a central priority. Chancellor Rachel Reeves is anticipated to introduce tax and spending strategies, amidst widespread speculation that taxes will increase to adhere to her fiscal principles.
Over the past three months leading to July, the services sector saw a 0.4% surge, bolstered by the health sector, computer programming, and office support services. Conversely, a decline in the production sector, encompassing manufacturing, counterbalanced this growth. In July alone, manufacturing experienced a drastic 1.3% contraction, the steepest since the previous year.
The UK economy previously showed promise with a 0.7% growth in the first quarter, followed by a 0.3% rise from April to June. Despite the recent slow down highlighted by the ONS, projections remain positive for the economy's growth in the third quarter.
As Chancellor Reeves prepares for the Budget, speculation mounts that tax increases are on the horizon to meet the economic rules she has set, which include balancing day-to-day government spending with tax revenue by 2029-30 and reducing national debt relative to income by the end of this parliamentary term.
Estimations of the fiscal gap Reeves needs to bridge vary significantly, but she has dismissed the higher forecasts. Given Labour's campaign promise not to hike taxes on “working individuals,” attention focuses on how else she might achieve fiscal targets. Business leaders are vocal about the strains from recent rises in National Insurance Contributions (NICs) and the minimum wage, cautioning that further tax burdens could stifle growth.
KPMG UK's chief economist, Yael Selfin, suggests the third quarter's weak start may predict future economic challenges as growth drivers from the first half of 2025 begin to fade.
Amid these developments, a Treasury spokesperson acknowledged the need for further action to spur growth, citing long-term underinvestment as a significant factor. Conversely, Shadow chancellor Sir Mel Stride criticises the government's distraction from critical issues, highlighted by a surge in borrowing costs, signalling a lack of confidence necessitating painful tax increases. Liberal Democrat Treasury spokesperson, MP Daisy Cooper, criticises the government's approach to growth, arguing it is hampered by detrimental policies and a failure to eliminate bureaucratic barriers with Europe, impacting exporters.
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