Britain's economy is growing at 1.3 per cent while Germany, France and Italy stagnate, yet experts warn the country needs stronger economic defences and a smaller state to weather mounting global threats. The analysis comes as Chancellor John Healey prepares his second Budget, following Rachel Reeves' November 2024 announcement which included 88 policy and tax changes on top of 70 from the previous year. That volume of changes left businesses, consumers, tax authorities and civil servants struggling to cope with what has been described as 'fierce policy indigestion'. Healey has said his approach will give the economy 'breathing space' following his predecessor's period of high policy activity.
The UK's relatively robust growth performance stands out against the weakness in Europe's largest economies. However, experts argue the government faces serious challenges that demand caution. Saudi Arabia is confronting Iran-backed Houthi rebels from Yemen, the White House is now led by what observers describe as an unreliable ally following changes in American leadership, France faces significant fiscal difficulties, and Germany's engineering sector is weakening as China gains dominance in mass car manufacturing. These pressures mean the government should avoid complacency, the analysis suggests, pointing to warnings from international bodies that have upgraded Britain's growth forecasts.
The Treasury must take the opportunity to reduce the size of the state, experts argue, including through freezing public sector pay and government benefits. Relying solely on tax increases introduced by the previous administration and unidentified spending cuts would be imprudent, the assessment suggests. The comparison is drawn to April 1967, when Chancellor James Callaghan pursued a 'steady as she goes' strategy that proved vulnerable to external shocks including the Six-Day War, Suez Canal closure and a dockworkers' strike. That combination of events led to a 14 per cent pound devaluation in November 1967 and Callaghan's resignation.
Meanwhile, HSBC reported a 32 per cent rise in pre-tax profits to £7.2 billion in the third quarter, though the share price fell 5.4 per cent as the result fell short of expectations in a rising interest rate environment. The strong profits are likely to fuel calls for increased windfall taxes in the Budget. Investors hoped for better performance and larger share buybacks, though the stock has gained almost 30 per cent over the past year. Experts suggest the bank should focus on strengthening capital and building reserves rather than distributing returns, given the geopolitical and technological challenges ahead.
For British savers, borrowers and businesses, this means the government faces pressure to choose between providing economic stimulus through spending or protecting the pound and bond markets through restraint, with limited room for middle-ground policies.