Conservatives, business leaders and Chancellor Rachel Reeves all warn that political turmoil is bad for the economy
Keir Starmer and Wes Streeting are at loggerheads (Image: PA)
Labour’s leadership turmoil is threatening the UK economy despite new figures showing unexpected growth, Conservatives warned. A similar message was issued by Chancellor Rachel Reeves, in a warning to rebels such as ex-Health Secretary Wes Streeting trying to force Sir Keir Starmer out of Number 10.
Output increased 0.6% in the first three months of the year and 0.3% in March alone according to the Office for National Statistics, suggesting the US-Israeli war with Iran has not caused major damage to the economy so far. But employers warned the full impact of the conflict has not yet been felt, while Conservative Shadow Chancellor Mel Stride said concern in the financial markets is pushing up the cost of government borrowing.
He said: “The chaos surrounding the Labour leadership is destabilising Britain’s economy.
“This week, borrowing costs hit their highest level in thirty years as Labour leadership contenders competed to promise even more spending, borrowing and fantasy economics. Only the Conservatives have a serious plan to Get Britain Working Again and to fix the public finances through our Golden Economic Rule.”
Yields on 10-year gilts rose to the highest level since 2008 on Tuesday, while yields on 30-year gilts hit the highest level since 1998. This means the cost of government borrowing rises.
Ms Reeves sent a blunt message to colleagues plotting against the Prime Minister. She said: “Now is not the time to put our economic stability at risk. To do so would leave families and business worse off.
“Instead, this Government is getting on with the job of building an economy that is stronger, more resilient, and prepared for the future.”
Business leaders welcomed the growth data but said the economy remained fragile and highlighted rising energy costs as well as the growing cost of employing staff, following Labour’s increases in National Insurance and the minimum wage.
Stuart Morrison, Research Manager at the British Chambers of Commerce, said: “Firms are concerned the full impact of the Iran conflict will start to show in the coming months.
“Businesses are facing huge cost pressures. Our latest survey shows 73% citing labour costs and 52% citing energy costs as price drivers, even before the escalation in the Middle East. Business confidence remains low and firms are struggling to invest.”
And he also stressed that political uncertainty “only adds to business concerns”. Mr Morrison said: “To grow our economy in challenging times, ministers must deliver in partnership with business. That can only come through supporting investment, boosting productivity, and getting more firms exporting.”
The UK may have experienced a short-lived boost to growth which is unlikely to be sustained over the coming months, according to some economists.
Julian Jessop, economics fellow at the Institute of Economic Affairs, said the first quarter GDP “will be as good as it gets” for the economy.
He said that business and consumer survey were “already pointing to a much weaker second quarter as the fallout from the crisis in the Middle East starts to hit”.
“For now, manufacturing and most services appear to be holding up well, perhaps benefiting from demand brought forward to beat the expected supply shortages and price rises.
“But activity in key sectors such as retail, construction and the housing market is starting to weaken sharply, and confidence is fragile.”