Government spending growth and the fall of the pound: how the UK economy is changing

The UK is facing increasing fiscal difficulties, which, according to experts, will force the authorities to consider tax increases in the autumn budget. Recent policy decisions, including softening welfare reform, will increase government spending by 4.8 billion pounds by 2029-30.

Financial markets reacted to these changes by increasing the yield on government bonds by 0.2 percentage points and reducing the pound sterling by 1% against the dollar. After Prime Minister Starmer publicly supported Chancellor Reeves, the situation partially stabilized, but key budgetary issues remained unresolved.

Business activity improved moderately: the composite PMI was revised up to 52.0, but the quarterly value is still 0.5 points lower than in the first quarter. GDP is projected to grow by only 0.1% in May.

The labor market is weakening: 27,000 jobs disappeared in May. Inflation expectations remain high, but have stabilized, with the three–month moving average dropping to 3.6% in June.