Reeves’ capital investment spree is a risk that must pay off

The UK economy contracted by 0.3% in April, bringing the Government back down to earth following a promising rise of 0.7% in the first quarter of the year. The drop off has proved that this year’s early growth was not sustainable and was driven largely by one-off stimuli such as the export surge in anticipation of tariffs.

As her array of commitments to public expenditure in the Public Spending Review demonstrated, the Chancellor is acutely aware of the need to build on the momentum of the first quarter and reignite the economy. She will be hoping that the front-loading of capital investment — highlights include

which will provide an immediate boost for the economy, as well as set the foundations for long-term, sustainable growth.

But the forecast for the UK economy is mixed. In May, the IMF predicted that the UK economy would grow by 1.2% across 2025. This was a rise from previous forecasts and predicts the UK to outpace the other major European economies, but it does suggest that the growth in the first quarter is over half what we can expect for the full year.

This is not an ideal scenario for the Chancellor. The sustainability of her spending promises is critically dependent on changing this — kick starting the economy to grow GDP and collect more revenue through tax receipts. Without this, the Chancellor may be forced into unwanted — and unpopular — tax increases in the Autumn Budget to keep public finances on track.