At the end of last year, Rachel Reeves was under fire for the impact of budget speculation on Britain’s economy. All of the noise about fiscal holes, tax increases and spending cuts before her late November budget was having a real-world effect on the spending decisions of households and businesses.
The latest official figures will therefore come as a boost for the chancellor. Britain’s economy grew more strongly than expected in November, up 0.3%, despite the fog of uncertainty in the lead up to her critical tax and spending speech at the end of the month.
Much of the increase was outside Reeves’s direct control. After manufacturing output was crushed by the Jaguar Land Rover cyber-attack earlier in the autumn, a recovery was always anticipated. With the return of its production lines close to capacity, factory output in November raced ahead.
Elsewhere there were signs of the budget speculation hitting output. Real estate activity slumped in November, as property owners and house hunters put things on hold while awaiting the outcome of the chancellor’s tax decisions. Consumer-facing businesses also struggled, partly fuelled by the uncertainty sapping household confidence. However, the UK’s dominant service sector was stronger than anticipated despite these headwinds.
Within the Treasury there is acknowledgment that too much speculation has throttled growth. As a result, the chancellor has promised a no-frills spring statement. Leaving a significantly larger buffer against her fiscal rules, and removing a requirement for the Office for Budget Responsibility to check whether they are being met in the spring, is all designed to limit the chances of a repeat.
Having come through this period of pre-budget speculation in better shape than feared, the hope now for Reeves is that Britain’s economy could strengthen further in the coming months.
So far surveys show a small uptick in December. The latest figures from the purchasing mangers index – a closely watched barometer of business activity – show private sector output improved as firms put the chaotic months of tax speculation behind them.
There are also positive tailwinds. Inflation is expected to fall significantly – helped by Reeves’s budget measures. The Bank of England predicts the headline rate could drop by as much as 0.5 percentage points, enabling it to hit its 2% target by the spring.
There are tentative signs of the jobs market stabilising, workers are benefiting from real wage growth and households are sitting on elevated levels of savings. If consumer confidence improves, this could translate into stronger retail, hospitality and leisure spending.
However, economists say there are reasons not to get carried away.
Business leaders warn cost pressures remain high. A rising minimum wage, tax increases, elevated borrowing costs, and the cumulative impact of past increases on all of these fronts is likely to weigh heavily. In its 2026 outlook, the Resolution Foundation warned this could finish off many so-called “zombie firms” that have been able to just about keep paying the bills – leading to a sharp uptick in unemployment.
Geopolitical concerns have risen up the agenda. Donald Trump’s increasingly interventionist approach to world affairs could chill the world economy and business investment. Meanwhile, on the domestic front Labour has a tough round of May elections to overcome – raising the spectre of fresh political instability.
November might have been a stronger month than anticipated. But there is considerably more work still to be done for the chancellor to lift the clouds over the UK economy in 2026.
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