UK economy grows at fastest rate in over two years

I want to start today with some rather surprising news, so surprising indeed that perhaps you might like to have a bit of a sit down first. Here goes. In Britain, something is going right. According to official, albeit provisional, figures, our economy grew by 0.7% in the third quarter of the year, the fastest since 2024. Growth per head, which many see as a more meaningful measurement, grew by the same amount. Business investment was up by 3%, exports up by 5%. Now, those might not seem very big figures, but in the context of endless commentary about the feeble and desperate state of the UK and recent government failure, it feels like an impressive reality check. Growth, according to the boffins, is being driven by tech and AI, where this country has quite a strong record. For Andy Burnham, it plays usefully into his politics of buoyant optimism, but is also a shock, of course, because it suggests that it might already be time to review the reputation of Rachel Reeves. Perhaps she wasn't, after all, doing such a bad job at the Treasury before Mr Burnham and John Healy rocked up. After Britain's first ever woman in the job left government, Reeves was voted in an unscientific poll the worst chancellor in recent times. And there's no doubt that from the winter fuel benefits cut to inheritance tax and farmers, she made plenty of enemies. But could it be the case that her two years of iron fiscal discipline and her focus on investment is now actually paying off? None of this, of course, reduces the pain of rising prices over the winter or the energy inflation problem or the difficulty of some of the decisions just ahead for the Prime Minister. Alan Milburn, who next week publishes his review into getting more young people into work, has decided that part of the welfare system needs to be rebuilt from scratch, bringing in a new youth allowance to replace sickness and disability benefits for people under 25. And that'll mean some current claimants, as well as new ones, getting less money. Even people on the right of the Labour Party think that Milburn, a former cabinet minister, has been rather brave and wonder whether the prime minister, regularly mocked by the Tory leader, Kemi Badenoch, as a people pleaser, has the courage to back him. It is going to be a fascinating winter in politics. Let's start with an overview of the surprising resilience of the British economy. Paul Johnson is the former director of the Institute for Fiscal Studies. What was his reaction to these latest figures? Well, it's the latest in a line of figures that have been somewhat better than expected, and this is particularly good. What I do at this stage always say, be careful of just the most stats. These can often are getting revised down. But as I say, if you put the year as a whole, this looks like it's going to be a pretty good year for growth and better one than we've had for quite some time and definitely better than was projected a year ago. And in particular, surprisingly good considering that we've had the war in the Middle East at the same time. So, you know, it's hard to say this is anything other than pretty good news as far as one can tell. It comes against a kind of absolute welter of commentary, and I'm probably guilty of some of it myself, about the weak state of the fragile state, the anemic state of the British economy, and we're in real trouble. It's beginning to look as if we've been too pessimistic about ourselves. I wouldn't jump to that conclusion. If you look over the last 15 years, it has been pretty feeble. If you look over the last six years, it's been pretty feeble. So this is better than we've had over that period, and that's really good. But we shouldn't think that the last considerable period of time, really since 2008, has been anything other than absolutely appalling. If this is a change from that, that's fantastic. But it'll take a little bit of time before we can say for sure this is true. I mean, really, what it looks like we're getting at the moment is something a bit closer to the sorts of growth we expected to get before 2008. Not quite there yet. If you look over the year as a whole, but certainly better than we've had for some time. Returning to that trend. So too early to pop the English sparkling wine. Fine. I suggested that perhaps people were going to have to start to review the record of Rachel Reeves. Now, putting to one side some of the obvious political missteps, and I'm thinking of the winter fuel allowance and all those kinds of things. Do you think that her focus on fiscal discipline... And investment may be beginning in a small way to pay off. Well, if you look at what seems to be driving these figures, they're not obviously directly related to some of those things. It looks like it's the tech sector. It looks like it's IT and AI and some of the services sector. I mean, it's always looked like investment, increased investment was. a good thing to do for the long run, and both this government and the last government did more of that than we had before. Although, to be fair, quite a lot of this government's investment has been in a combination of defence and HS2, which is not particularly useful for the economy. I think what we're really seeing is an impact of what's happening in the tech sector, an impact of AI, And actually the fact that one area where the UK is strong, strong relative to the rest of Europe, which is in our venture capital and in our tech sectors. I mean, a long way behind the US, but we're actually, once you take the US and China out of the equation, we're actually a very strong country for that, as I say, way behind the leaders, but really quite good by European standards. And because that sector is doing well internationally, that is a positive thing for the British economy. Certainly since the sale of DeepMind, we haven't had any of the really big, grand companies that can have bestridden the world of this. Is it fair to say we do, however, have quite a lot of the so-called unicorns, the smaller, faster growing AI and tech companies? Well, again, it depends who you're comparing us with. Compared with the US, no, we're absolutely miles behind, even on a sort of per capita basis. Compared with the rest of Europe, yes, we do relatively well on that. But But it really does depend how you want to make those. Comparisons and we do have a somewhat more, a somewhat better sector, both in terms of our basic research and development and in terms of availability of venture capital than the rest of Europe. Nevertheless, we're still seeing a lot of British firms going to the U.S. for their capital, actually moving to the U.S. because that's where they're. Is capital available and certainly being sold to U.S. companies because of that? So we're doing reasonably well on that, but we shouldn't, again, we shouldn't get overexcited by this because we are still more dependent than I think we would like on the U.S. So perhaps that's a job for the current chancellor to somehow turn that around and persuade more companies to stay in the U.K. and to grow here. And there are a number of issues there. One is about availability of finance and... All recent charts have been trying to do something about that. One is about actually some of our infrastructure, and we haven't done so well on that, and just in terms of making it easy to get around the country. I mean, I'm sitting here in Oxford, and I've written this week about how impossible it is to get between Oxford and Cambridge, which ought to be a real tech super hub. But actually, they might as well be in different countries in terms of how poorly... I don't want to sound too brutal about this, but was there anything in John Healy's first budget that changes the dial? There's nothing very substantial in that budget. It was a pretty small... I mean, there's a lot of things in it, but none of them were on any significant scale. And I don't think they were intended to be on any significant scale. I mean, they kept. things reasonably stable and stability, but they get things stable on a macro level and stability is a good thing. But actually, there are an awful lot of small changes in there, a lot of them supposedly temporary, which are not so good for sort of the stability and planning. And one thing governments can certainly do more of is to provide companies, to provide businesses, to provide households with more certainty about where they're going to go in the future. Very balanced message there. Paul Johnson, thank you so much for talking to LBC. Thank you. And listening to that, Helena Dollymore, Labour MP for Hastings and Rye, who worked in the Treasury under Rachel Reeves and is now co-chair of the Labour Growth Forum. Thank you very much, Helena, for joining us. Now, we know that growth in the economy really comes from private companies, private sector companies growing, employing more people, not from government. Having said that, do you think these figures are a bit of a vindication of the Treasury strategy under Rachel Reeves? I think these figures are absolutely a vindication of the choices that Rachel made as Chancellor, that the Labour government has made over the past two years, and that John as Chancellor is continuing. decisions that are about creating the right conditions for investment these growth figures that are beating all of the forecasts again for the for the second time this year they are not an accident they are a result of the deliberate policy decisions that were taken and that is why the IMF the International Monetary Fund actually called out the UK as a standout country How they were growing, and also the steps specifically that the Labour government has taken on deficit reduction, which is making us much more resilient to these global shocks that we are seeing, like the crisis in the Middle East. And it's a very difficult international environment. That remains the case. It's very difficult for individual families, for businesses, absolutely. But the decisions that have been taken by this Labour government are making our economy more resilient to those global shocks. So clearly, Helena, stability is a very, very important thing. The bond markets matter a lot. But beyond that, can you explain to people listening what the decisions that Rachel Reeves took that have worked out so well were? If you take, for example, the issues that Paul was just outlining with infrastructure and how hard it is to build things in this country. You know, we haven't built a reservoir in this country for 30 years. It's incredibly difficult to build homes in this country, to build rail, to build roads, to build the infrastructure that people need to get around and businesses need to thrive. So, some of the reforms that this government has brought in, the planning reforms, actually make it easier to build the homes and the infrastructure that we need. And actually, because of the time that things can take to go through Parliament, those changes are only now starting to come into effect this year, kind of two years into the Labour Partly because Conservatives in the Lords blocked them for so long and held them back. So, we're seeing these growth figures. And this is yet also before some of those planning reforms kick in that I think will really help the construction sector and some of the infrastructure we need to drive the growth. You know, if we think about AI and we think about the need for data centres, for example, we do need reforms to enable that. We need more reservoirs. We need water to feed the homes and the infrastructure that we want to build. Helena, nobody is forced to become a leading politician, but what happened to Rachel Reeves was particularly brutal, I think, the way that she fell and what was said about her afterwards. Do you think she is thinking now, she feels vindicated, you know, I told you all along, look at these figures? I think Rachel's record as Chancellor and the Labour government as a whole, you know, John is continuing this record of driving growth. It speaks for itself. The decisions that the Labour government has taken are decisions that the IMF has praised the UK for making it more resilient. Sorry to jump in, but so why was she fired as Chancellor then? Well, we have a Chancellor, John Healey, who is continuing to drive. All right. I was hoping I was hoping to drive a wedge between you, but I'm not going to. Never mind. Let me ask you about the other big story today about the Alan Milburn review, because we've got a pretty good idea of what he's going to say. Not everything, but a pretty good idea. And it will mean some people under 25 losing some money. Current claimants as well as new claimants. Do you think that's something that could be sold to the Labour backbenches without there being another huge revolt as there was last time round? Well, we haven't seen the results of the Milburn review yet. That will be coming out next week. But I, like many Labour MPs, and I think many people up and down our country feel that something has got to be done about the fact that we have a national scandal with a million young people not in education, employment or training. We cannot let this continue. It's something that was allowed to build up under the Conservatives. They left young people. They didn't support them to get into work. And it's this Labour government that will be cleaning up And I'll be watching the Milburn recommendations very closely. I think we've got to get young people into work. And when we think about what is best for young people, we need to think about what is best for them over their lifetime. What is the best for their life chances? And that's really important that we consider that when we consider these issues. Helen Dollymore, it was great to have you on the show. Thanks very much indeed for that. Let's also now get the perspective of our political correspondent, Bethany Dawson, ahead of what's going to be a very big week for the Prime Minister, Bethany. You heard there a Labour MP who is clearly behind the Milburn approach. And I don't completely agree with her. I think we have seen quite a lot of it. But there are signs that the left of the party are already mobilising against him. Yes, Andrew, there are definitely MPs within the Labour Party, those that might be characterised as usual suspects. Who are unhappy with the idea of any welfare cuts, including the ones that have been reported to be within Alan Milburn's report, which would see under-25s moved off the main sickness and disability benefits. That's the health element of Universal Credit or Personal Independence Payment. Now, as we've said, it's being reported in other newspapers, but also MPs are taking to their social media accounts to say that they are very unimpressed. But I have been speaking to MPs today, many of whom voted against. Keir Starmer's welfare changes, the welfare rebels, as it were, and they are more comfortable with these cuts. Because that is the real question. Of course, there will be people on, as it were, the hard left, Neil Duncan Jordan, for instance, Bel Ribeiro, Addy, who you would expect to be against this and are. But the question is, what about that middle section? I'm thinking of Meg Hillier, who chairs the Treasury Select Committee, and those more mainstream Labour backbenchers who were against it last time. Are they beginning to come on board, do you think? They are. One I spoke to today said that this is partly because there's been more consultation. Keir Starmer's welfare cuts happened somewhat out of the blue, at least in the perspective of those MPs. They were surprised and they didn't want to see cuts done and they couldn't support cuts that they didn't understand. They also seem to be done from a numbers point of view. Keir Starmer's government wanted to say they could make five billion pounds of savings. It's understood that the upcoming Tim's review and also the Milburn review next week are not going to say that. going to make a number of savings, rather they're going to talk through sort of a journey on how they can help young people who are NEET. It's one of the oldest laws in politics. Have the argument before you have the vote, not afterwards, I think. Bethany, thank you very, very much for that.