Chancellor faces criticism for silence after zero growth figures as November Budget threatens further tax rises of up to £50bn
Rachel Reeves was last night accused of “going into hiding” after the economy ground to a halt under the weight of her tax hikes, with official figures showing UK output flatlined in July triggering warnings from business leaders that the Government “cannot tax its way to growth.”
The bleak figures were met with a stony silence from the Chancellor, though a Treasury spokesman was forced to admit the economy “does feel stuck.” Ms Reeves’ failure to address the situation ahead of what looks set to be a brutal Budget of further tax hikes on 26 November sparked outrage across Westminster.
Shadow Chancellor Sir Mel Stride said: “It’s no wonder the Chancellor has gone into hiding while the economy crumbles on her watch.” The criticism came as the Office for National Statistics revealed the UK economy recorded zero growth in July, following a 0.4 per cent expansion in June.
Economy stalls amid business warnings
Until now, Ms Reeves has regularly commented on economic figures, and last month hailed “a strong start to the year” after the Office for National Statistics reported growth of 0.4 per cent in June. But Treasury sources yesterday confirmed she would not be commenting on the latest figures, marking a dramatic change of tack.
The silence came amid chaos on Downing Street as the Government reels from the high-profile departures of Deputy Prime Minister Angela Rayner, who resigned over a stamp duty scandal, and Lord Peter Mandelson, sacked as US Ambassador over his ties to Jeffrey Epstein.
There are also suggestions that Sir Keir Starmer has sidelined Ms Reeves with the appointment of his own economic team at Number 10, bringing in key Treasury figures to second-guess the Chancellor’s decisions.
Yesterday’s ONS figures showed the economy flatlined in July after manufacturing output dropped by a hefty 1.3 per cent on the month, the biggest contraction since July 2024. Over a three-month period, output crawled just 0.2 per cent higher, well below the growth needed to meet Labour’s ambitious targets.
Business leaders sound alarm
The boss of Barclays yesterday urged Ms Reeves to cut spending rather than raise taxes to balance the books. “We need to curb expenditure at the government level,” said the bank’s chief executive C.S. Venkatakrishnan, warning against further tax increases.
Ben Jones, lead economist at the CBI business lobby group, said the economy is “stuck in the shade,” whilst Anna Leach, chief economist at the Institute of Directors, warned: “Plans for growth have been hit by sharp rises in employment costs, and fears of yet more tax rises to come to fill the latest black hole in the public finances.
The criticism comes as Ms Reeves faces the prospect of raising between £20 billion and £50 billion in additional taxes at her second Budget on 26 November. She raised taxes by £40 billion in her first Budget in October last year, with the burden falling primarily on businesses through increased employer National Insurance contributions.
UK inflation highest in G7
Adding to the Chancellor’s woes, the UK continues to suffer from the highest inflation rate among G7 nations. Consumer Price Index inflation stood at 3.8 per cent in July 2025, up from 3.6 per cent in June, nearly double the Bank of England’s 2 per cent target.
This compares unfavourably with other major economies, with the EU average at 2.4 per cent, Germany at 2.1 per cent, and France at just 1.3 per cent. The persistently high inflation has sent UK government borrowing costs to 27-year highs on global bond markets in recent weeks, further constraining the Chancellor’s room for manoeuvre.
Concerns over the parlous state of the public finances have intensified pressure on Reeves to find additional revenue, with servicing the government’s existing debt level now costing over £100 billion annually.
November Budget threatens more pain
Despite previously telling the CBI business group “I’m not coming back with more borrowing or more taxes,” the Chancellor appears set to do exactly that. The Budget, delayed from October to 26 November, has prolonged uncertainty about where tax rises will fall.
Speculation is mounting that Reeves could target wealth taxes, extend the freeze on income tax thresholds beyond 2028, or introduce new levies on specific sectors. The Chancellor has ruled out raising the three main taxes – income tax, National Insurance, and VAT – but that does not prevent her from widening their scope or adjusting thresholds.
Business groups warn that further tax rises could choke off the nascent recovery. Survey data from the ONS suggests firms are already holding back on recruitment due to October’s National Insurance increases, with many warning this would be an inevitable consequence of higher payroll taxes.
Political pressure mounts
Sir Mel Stride added: “Raising taxes again won’t fix Labour’s economic mismanagement. The Chancellor promised growth but has delivered stagnation. British businesses and families are paying the price for Labour’s economic incompetence.”
The Conservatives pointed out that whilst the UK economy grew by 0.7 per cent in the first quarter of 2025 – making it the fastest-growing G7 economy at the time – momentum has since evaporated under the weight of Labour’s policies.
Rob Wood, chief UK economist at Pantheon Macroeconomics, offered a slightly more optimistic view, suggesting the UK’s finances were “looking pretty resilient to the barrage of shocks faced this year.” However, he still forecast the Bank of England would hold interest rates at 4 per cent until at least the end of 2025.
Chancellor under pressure from within
The delay in the Budget from October to November has fuelled speculation about tensions within government. The Prime Minister’s recent reshuffle, which brought his own economic advisers into Downing Street, is seen by some as an attempt to exert more control over Treasury policy.
Meanwhile, candidates for Labour’s deputy leadership contest have announced their own tax manifestos, particularly on wealth taxes, adding to the pressure on Reeves to act. Former Deputy PM Angela Rayner had previously suggested tax rises on businesses and individuals that could bring in an extra £4 billion annually.
The Institute for Fiscal Studies and Treasury officials have warned that unless economic indicators improve dramatically, further tax rises in the Autumn Budget are “inevitable.” Bloomberg Economics estimates Reeves will need to raise around £35 billion, largely through taxes, to meet spending commitments and fiscal rules.
Business confidence evaporates
The Federation of Small Businesses warned that confidence among their members has “fallen off a cliff” since the October Budget, with many now planning to reduce investment and cut jobs rather than expand.
Manufacturing, which accounts for 9 per cent of the UK economy, saw particularly sharp declines in July, with falls across computers, electronics, and pharmaceuticals. The services sector, whilst still growing, managed only a 0.1 per cent monthly increase, far below what’s needed for robust expansion.
Suren Thiru, economics director at the ICAEW accountancy body, warned: “July’s slowdown is probably the start of a more restrained period for the economy with higher inflation and rising job losses likely to have stifled activity.”
What happens next
With the Budget now just over two months away, businesses and households face an anxious wait to discover where the axe will fall. The Chancellor’s silence on the latest economic figures has only added to uncertainty, with many interpreting it as an admission that her growth strategy has failed.
Deutsche Bank’s chief UK economist Sanjay Raja warned: “After a surprisingly stronger second quarter, where the UK claimed the fastest growth rate among G7 economies, all signs point to a slowdown in economic activity in the second half of the year.”
As one senior Treasury source admitted yesterday: “The economy isn’t broken, but it does feel stuck. The question is whether raising taxes again will unstick it or make things worse.”
With inflation remaining stubbornly high, growth stalling, and borrowing costs soaring, Rachel Reeves faces an unenviable task in November. Her continued silence suggests she knows there are no easy answers to the economic crisis engulfing her chancellorship.
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Image Credit:
The Chancellor Rachel Reeves and Defence Secretary John Healey hold a roundtable with the Defence & Economic Growth Taskforce (28 May 2025, London) — photo by Simon Walker / HM Treasury, licensed CC BY 2.0 under Open Government Licence v3.0.
