Getting the economy growing again will present Reeves with a challenge. If at heart she is a chess prodigy who calculates every move on the board, a prudent financier and a saver from a young age, she may need to learn to loosen the purse string a little.
“Rachel Reeves knows full well that while aiming to curb excessive spending and lower public indebtedness sounds like the prudent thing to do, it also acts as a binding constraint on an economy that is in bad need of higher investment,” said Konstantinos Venetis of research provider TS Lombard.
The newly-elected government doesn’t have to look far back in history to find a prime minister intent on delivering growth who managed to achieve the opposite. Liz Truss, the U.K.’s shortest-serving PM, pledged the same outcome in 2022 by cutting taxes — and ended up crashing the economy.
“With memories of the autumn 2022 mini-budget debacle still fresh, the incoming Labour government will take pains not to upset the markets,” Venetis said.
Keeping the City of London on side will be a priority for Reeves. The Labour Party pledged in its January financial services manifesto to “champion” the square mile, and has strived to re-position itself as the party of business after shattering City confidence under the previous left-wing leadership of Jeremy Corbyn. Reeves sat out Corbyn’s leadership on the Labour backbenches and has been quick to distance herself from his approach.
But Reeves will want something in return from the City: investment. One way she hopes that will be achieved is the National Wealth Fund, a public-private fund announced Tuesday which aims to get £20 billion of investment back for taxpayer input of £7.3 billion.
