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Tuesday, Apr 01, 2025

Economic Sentiment in the UK Challenges Chancellor Rachel Reeves

Economic Sentiment in the UK Challenges Chancellor Rachel Reeves

A Deloitte survey reveals rising pessimism among UK CFOs, intensifying pressure on the Chancellor amid borrowing cost concerns.
Rachel Reeves, the UK's Chancellor, is under increasing pressure following a recent report reflecting growing pessimism among the country’s chief financial officers (CFOs).

The quarterly survey conducted by Deloitte found that 26% of CFOs are more pessimistic about business prospects than they were three months prior, marking the first instance of net pessimism since June 2023, just before the UK entered a recession.

Deloitte’s survey results signal a critical period for the Chancellor, as executives express concerns over growing costs and a decline in hiring expectations, despite previous government promises to boost disposable income and employment.

Ian Stewart, Deloitte’s chief economist, remarked, “With cost control to the fore in the wake of the Budget, CFOs have trimmed expectations for corporate investment, discretionary spending, and hiring in the next 12 months.” This sentiment positions 2025 as a year of modest growth for the UK.

Despite the overall negative outlook, some CFOs anticipate economic growth improvements over the summer, potentially exceeding the eurozone’s performance supported by easing fiscal policies and interest rate reductions.

Inflation fears appear to be diminishing, positioning the UK as a relatively attractive investment opportunity compared to Europe, though not as appealing as the US.

Simultaneously, challenges mount for the Chancellor as the financial services sector struggles.

Morgan McKinley's report highlights an 18% reduction in City financial services jobs towards the end of last year, with a 12% annual decline attributed to economic volatility, geopolitical uncertainty, and technological disruptions.

As Mark Astbury from Morgan McKinley notes, this contraction suggests that issues in the sector predate recent budgetary measures.

Amid this backdrop, rising government borrowing costs have heightened concerns regarding the UK’s fiscal position.

Speaking from Beijing, where she is enhancing UK-China economic ties, Reeves reiterated the non-negotiable nature of her fiscal rules and expressed readiness to make adjustments if required.

Her visit also involved forging £600 million worth of economic agreements with China, underlining the significance of maintaining a balanced yet pragmatic relationship with the country.

Reeves' trip comes at a politically sensitive time, with opposition parties criticizing the decision to engage internationally amid domestic economic challenges.

Shadow Chancellor Mel Stride remarked on her absence during a crucial period for the UK market.

Meanwhile, Reeves continues to stress the importance of diplomatic and economic partnerships, particularly with China, amid opinions divided over potential national security risks.

As the Chancellor navigates these complex pressures, the UK government remains steadfast in its pledge to improve disposable incomes and employment, although the path forward necessitates careful adjustment to keep fiscal strategies aligned with national goals.
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