What Does Rachel Reeves' Budget Really Mean for the UK's Economic Future?

In the wake of Rachel Reeves' recent budget announcement, the headlines have been buzzing with talk of tax hikes, spending increases, and fiscal tweaks. But let's step back from the minutiae—the £26 billion in tax rises over five years, the modest expenditure boosts—and zoom in on the bigger picture. What does this budget truly signal about the UK's economic trajectory? 

Drawing from the Office for Budget Responsibility's (OBR) latest forecasts, it's clear we're in for a bumpy ride, marked by stubbornly high interest rates, sluggish growth, and a host of challenges that could leave ordinary households feeling the pinch. This isn't just number-crunching; it's about the real-world impacts on jobs, savings, and prosperity.Start with interest rates, a hot-button issue that's been dominating economic debates. The government seems fixated on them, and for good reason—they influence everything from mortgage payments to business loans. The OBR's projections paint a concerning picture: far from easing as many hoped, rates could actually tick upward in the coming years. We're looking at a short-term dip, followed by a rise that extends well into the late 2020s. Government borrowing costs are expected to climb steadily until at least 2030, hovering at levels that feel punishingly high.Compare this to our global peers, and the UK's position looks even more precarious. Against the rest of the G7 nations (excluding us), our rates are forecasted to remain elevated—often a full percentage point or more above the average. Even the US, with its own economic heft is projected to see rates fall, dipping below ours as we move forward. Why the disparity? Blame it on the Bank of England's persistent tight monetary policy, including quantitative tightening, which squeezes liquidity and keeps rates afloat. Reeves has lamented that one in every ten pounds of government spending goes toward interest payments, yet there's little in the budget to suggest a bold shift. Without intervention, this could stifle investment and growth, leaving the UK as the odd one out in a world where cheaper borrowing fuels recovery. 

This interest rate stubbornness feeds directly into the growth outlook, which is anything but rosy. Real GDP growth is expected to peak modestly in the near term—around 1.5% at best—before settling into a lackluster pattern. The recent number from OBR's show a downward revision from earlier projections. Until 2030, we're staring at growth rates flatlining well below 2%, a far cry from historical trends or what we'd need for a vibrant economy. It's a classic symptom of neoliberal policies that prioritize fiscal restraint over stimulus: low ambition yielding low results. If growth is the government's yardstick for success, this budget falls short, earning a "must try harder" rather than applause.Inflation forecasts add another layer of skepticism. The OBR anticipates a convergence to the magical 2% target by 2027, with current projections slightly higher than spring estimates but merging seamlessly thereafter. This assumes a perfect world—no wars, no supply shocks, no AI disruptions—just a neat return to the mean. But in reality, such modeling ignores the chaotic forces at play in global economics. It's optimistic at best, delusional at worst, and undermines the credibility of the entire fiscal plan. If inflation doesn't behave as predicted, the budget's delicate balance could unravel quickly.

Unemployment trends are equally telling. Revised figures show higher jobless rates now than anticipated earlier in the year, with a slow correction toward what the OBR deems "normal" at around 4.2%. Yet, this optimism clashes with other indicators. Employment rates are paradoxically projected to rise slightly, but in a context of tepid growth and high rates, that seems fanciful. We're likely heading for higher unemployment than these all data suggest, as businesses hold back on hiring amid uncertainty.

Drill down to household level, and the forecasts hit home hardest. Real household disposable income per person is set to stagnate, with growth rates hovering near zero once inflation, taxes, benefits, and income patterns are factored in. This means no meaningful improvement in living standards—no extra cash for families to save, spend, or invest. It's a recipe for voter disillusionment. If Labour promised change in 2024, these numbers suggest they're delivering more of the same: policies that favor financial markets over Main Street. Come 2029, this could spell electoral trouble, potentially paving the way for even more disruptive Far Right alternatives.

Business sentiment echoes this gloom. The real rate of return on capital is forecasted to languish at historically low levels through 2030, rivaling the doldrums post-2008 crash. Profits are expected to flatline, stuck at crisis-era figures. Investment? It's on a downward trajectory, despite a brief uptick recently. Businesses aren't gearing up for expansion; they're bracing for tougher times. This contradicts any narrative of a pro-growth budget—without incentives for real investment, we're stuck in a low-productivity trap.

Trade figures compound the issues. Both exports and imports are projected to rise, but imports faster than exports, widening our dependency on foreign goods. This isn't the hallmark of a resilient economy; it's a vulnerability, especially in a world of geopolitical tensions. We're essentially betting on continued global stability to keep our shelves stocked and our trade deficit manageable. Spanning 2015 to 2031, we may notice that how government borrowing mirrors private sector saving—a fundamental truth often overlooked. When the public sector borrows, households and businesses save. Look at 2021: massive government outlays during COVID led to surging household savings. Fast forward, and households are saving again out of fear—rainy-day funds amid economic mismanagement.But the projections raise red flags. Businesses are oddly expected to borrow heavily, despite falling profits and investment—perhaps to cover losses? Households shift from saving to net zero by 2031, dipping into reserves just to get by. The government aims to reduce borrowing, but history shows these forecasts rarely hold; borrowing often increases. The wildcard? The rest of the world is soaring high, implies foreign lenders will happily park funds in sterling, buoyed by our high rates. This could attract "hot money"—volatile capital chasing yields—but at what cost? It props up the pound artificially, while squeezing domestic borrowers.Relying on high rates to lure foreign cash exposes the budget's fragility. Homeowners face steeper mortgages, businesses shy from loans, and overall growth suffers. It's a short-term fix masking deeper issues: no robust manufacturing strategy, no plan to boost exports, no vision beyond austerity-lite.In essence, this budget reveals a government adrift, clinging to outdated models that prioritize fiscal rules over people. High rates, stagnant incomes, and declining investment point to a future where many feel left behind. Yet, alternatives exist—bold investments in green tech, tax reforms favoring workers, and monetary policies that prioritize full employment could chart a different course.

So, is this the best we can do, or is it time for a rethink that puts prosperity back in the hands of everyday Brits?