Rachel Reeves looks to nurture GDP green shoots

As news broke on Friday that Britain’s economy had grown by a striking 0.5 per cent in February, well above analysts’ expectations, chancellor Rachel Reeves was having breakfast in Downing Street with economists.

The GDP bump was relayed to Reeves by an aide over WhatsApp, prompting the chancellor to surreptitiously reply with a “heart” emoji. “She was surprised, everyone was surprised,” said one ally of Reeves.

For the chancellor, it was a welcome respite: a sign, perhaps, that her autumn Budget’s £25bn employer national insurance “jobs tax” rise, which kicked in this month, had not had quite the chilling effect many surveys had suggested.

But Reeves was quick to note this was only a snapshot for a single month and that the Office for National Statistics data covered a moment in time before US President Donald Trump unleashed his global trade war.

“The world has changed,” as Reeves put it on Friday morning. Her task is to ensure that signs of a British economic spring are not wiped out by the icy winds blowing through the global trading system.

Reeves’ breakfast was part of a series of meetings this week to chart a way forward for the economy and to consider how to protect those sectors most exposed to the tariff disruption.

Her starting point is that Trump’s 10 per cent baseline tariff — which hits Britain along with most other countries — will probably be in place for the foreseeable future, whatever trade deal the UK might strike with the US.

While ministers hope they can persuade Trump to cut the 25 per cent tariff on British car exports, Prime Minister Sir Keir Starmer warned this week that the US president’s trade offensive was not “a passing phase”.

Starmer has promised to “turbocharge” existing government plans — rather than bringing forward a suite of new policies — to deal with the new environment and Reeves is also looking to speed things up.

Still, some Labour MPs believe Starmer and Reeves have yet to find the policy response to match their dramatic rhetoric about “the end of globalisation”. One said: “It’s all very well talking about it but where’s the action?”

Reeves’ allies speak of a four-pronged response — or “four buckets”, to use Treasury parlance — one of which includes the chancellor playing a global role in building up trade alliances and defending free trade.

Remarkably, Reeves is now the second longest serving G7 finance minister — after Italy’s Giancarlo Giorgetti — even though she has only been in post for nine months. The IMF and World Bank meetings in Washington later this month are seen as a key moment.

Allies of Reeves claim she can play a convening role on trade in the same way that Starmer took a leading role in trying to shape a “coalition of the willing” to secure any peace deal in Ukraine. That initiative has, in the absence of peace, inevitably stalled.

The second element will see the government accelerate decisions around the public spending review and industrial policy — both of which were due to come to fruition in June — to support the economy.

Reeves wants to make some announcements in the coming weeks, including settling parts of the spending review — a “ground zero”, multiyear look at all Whitehall expenditure plans — ahead of the June 11 deadline.

The spending review will focus on the £20bn of extra borrowing for capital expenditure allowed every year under Reeves’ fiscal rules, set out last October, to support areas such as transport infrastructure and energy projects.

“We don’t want to see this money just used to fix school roofs,” said one ally of Reeves. “We want to invest in technology in the public sector. There’s a large amount of cash to invest in high growth areas.”

A third “bucket” relates to propping up sectors most affected by Trump’s tariffs, notably cars, life sciences and potentially pharmaceuticals — linked to the development of the industrial strategy.

Ministers are also preoccupied with saving the steel industry, which was stricken by structural problems before Trump imposed a 25 per cent global tariff on US steel imports.

Emergency legislation will be introduced on Saturday to try to save the British Steel plant at Scunthorpe, the country’s last blast furnace facility.

The problem, according to people working closely on the new industrial strategy, is that it does not measure up to the scale of the global change that is taking place — in Reeves’ favourite phrase — “before our eyes”.

One person working on the strategy, which is intended to focus on eight key growth sectors, said simply: “As it stands at the moment, it’s a complete red herring.”

Reeves’ team insist the industrial strategy is not all about money — regulatory reform and the removal of barriers to growth are viewed as critical — but they are aware of being seen to pursue “Bidenomics” but without the funds.

One ally said: “Keir and Rachel see this as a priority. There’s definitely renewed energy going into the industrial strategy.”

The fourth part of Reeves’ plan is to complete a US trade deal, heavily focused on closer tech co-operation, although an “economic pact” with Trump does not appear to be high on the White House’s agenda for now.

Just as politically tricky is Starmer and Reeves’ attempt to develop closer economic ties with Europe — a crucial UK-EU summit takes place on May 19 — building on a proposed pact to link up British and EU military capabilities.

Even more sensitive is an attempt to build up trade links with China, apparently hoping that Trump does not notice. Douglas Alexander, trade minister, was in China this week.

Reeves, who is more accustomed to receiving bad economic news than good on her phone, now faces a crucial few weeks as she attempts to nurture against the elements the “green shoots” glimpsed in February’s growth figures.