Rachel Reeves Risks Economic 'Doom Loop' if Spending Cuts Continue

By Evans Momodu
3 minute digest

Rachel Reeves, the UK Shadow Chancellor, risks entering an economic "doom loop" if spending cuts continue, according to former Bank of England chief economist Andy Haldane.

Haldane, who served at the Bank for 32 years before stepping down in 2021, raised concerns during an interview. He warned that reducing investment and spending in response to fiscal forecasts could create a destructive cycle of declining growth and rising debt.

"It would be deeply counterproductive to both growth and the fiscal position if that [forecast] led to a cutting back on investment and indeed in spending more generally," said Haldane. "Then I think you really are into a doomed loop between debt and growth. And that's a situation to avoid at all costs."

The Office for Budget Responsibility (OBR) is set to publish its next economic and fiscal forecast on 26 March 2025, five months after its October report, which projected limited economic growth over the following five years.

Haldane suggested that the reaction to recent economic challenges may be overstated, stating, "For me, I think some of the gloom and doom about both the economy and in bond markets is slightly overdone."

However, he emphasized that the scale of government spending cuts introduced this spring will be a key determinant of economic stability.

The warning underscores the delicate balance required in managing public finances. Austerity measures aimed at reducing debt could inadvertently stifle economic growth, leading to reduced revenues and further financial strain.

As the March OBR forecast approaches, policymakers will face pressure to find strategies that support long-term growth while addressing fiscal challenges, with many eyes on Rachel Reeves’ next steps in shaping the UK’s economic future.
Source: Sky news