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Starmer and Reeves navigate tricky economic backdrop

January 14, 2025
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A stuttering economy, spiralling government borrowing costs, plummeting approval ratings: little wonder perhaps senior ministers, not least the chancellor, aren’t wasting many smiles these days.

Remember too Sir Keir Starmer and Rachel Reeves are the duo that best personify the Labour project of the 2020s; the party’s revival and return, grounded in being trusted on the economy.

And yet the markets are collectively passing a verdict on Starmer and Reeves’s economic plan right now and it isn’t exactly a ringing endorsement – and wobbly markets can prompt political wobbles.

These shouldn’t be overstated, but neither should they be ignored.

What we’re witnessing is the brutal slog of government playing out; an unforgiving backdrop of economic flatlining, which critics say ministers have made worse.

Some Labour MPs fret about how tricky governing is proving to be, about the grumbles in their inboxes and about the prospect of the government having less money to spend on their priorities than they had hoped for.

Against that backdrop it shouldn’t be that surprising that reporters would double check the prime minister has a confidence in his chancellor that the markets don’t appear to – yes he did, he told us, albeit without committing explicitly to keeping her in post until the next election as the questioners had asked.

Cue a number of excitable headlines before Downing Street said it did indeed intend to keep Reeves in post as chancellor for the rest of this parliament.

Folk in No 10 regarded the exchanges as absurd, given how close Starmer and Reeves have been for years and how intertwined their political fates are.

They each have to hope that the markets settle down, that the cost of government borrowing falls and so the prospect of very difficult decisions recede.

Once again the prime minister emphasised that the government’s so-called fiscal rules – the parameters they set themselves on borrowing to appear credible – are non-negotiable.

This, alongside an existing commitment to not put up taxes further, strongly suggests the government will have to spend less than it had intended to on all sorts of ideas if it continues to spend more than it had intended to on servicing the cost of borrowing.

And then, enter next, artificial intelligence, an industrial revolution whirring on countless hard drives and computer chips.

The prime minister has a zeal to harness its opportunities.

You bet he has, you might think: perhaps he can get more for less from public services with whizzy computers doing things better and quicker, or so the theory goes, than human beings.

Perhaps too, as many expect, it will revolutionise the economy – as well as everything else – transforming productivity and boosting economic growth.

Sir Keir Starmer is taking an intentionally upbeat, positive posture on AI, emphasising the opportunities rather than dwelling on the risks and the threats.

For a prime minister accused by his critics in recent months of talking down the UK’s economy, his tone on AI had a boosterish feel, attempting to do what prime ministers can do – be the mood-makers of the country on an issue and how it’s approached.

But history tells us revolutions, industrial and otherwise, up-end things, and that means there are losers too.

Navigating that – as a society and for our governments – is the coming challenge.

Navigating these bumpy markets and flatlining economy, the challenge of now.



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Tags: backdropeconomicnavigateReevesStarmertricky

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