It has been a wild January for Rachel Reeves and frankly for economics in the UK and the world. When Labour swept to victory last summer, Reeves pledged she would be an “iron” chancellor, reining in public spending and improving the lives of working people through growing the economy. Without solid public finances, she argued, the government couldn’t achieve any of its other aims.
This month has tested that plan. It started off with a global bond market tantrum – UK borrowing costs hit their highest level for several years and the pound fell sharply. Some argued that Reeves’s Budget decisions had made the UK more vulnerable to such shocks. The prime minister was forced to confirm Reeves had his backing after political opponents called for her resignation.
The market turbulence sparked concerns that a verdict of sorts was being made on the chancellor. Reeves has pledged not to borrow to fund day-to-day spending and to get debt falling as a share of the economy. She has also been accused of making it harder for businesses to operate by increasing their costs through her policies.
But the government knows China is a rival in AI development, and the sudden emergence of China’s AI expertise via DeepSeek underlines how important it is to be nimble. There was only one mention of China in the government’s big AI paper earlier this month – in Science Secretary Peter Kyle’s foreword.
The pharma industry is lobbying the government to quietly open the door for relocation of key top talent into the UK, concerned about the Trump / Robert F Kennedy Jr approach to medicines regulation. Our leading universities are saying that for the first time since Brexit, it’s easier to recruit some of the very best international scientists who are not keen to bring up their families in Trump’s America.
After a tumultuous start to the year, with the US administration threatening different tariffs almost every day, and tech giant shares falling over concerns they’ve been overvalued in the light of China’s AI app DeepSeek, the UK remains a safe haven for investors. The self declared iron chancellor remains very attached to stability. But zero growth is a form of stability too. In choppy global seas, going for growth is going to require some very tricky navigation – and it will make some big domestic political waves too.
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