The British economy grew by 0.7% in the last quarter, the fastest rate in over two years. Unsurprisingly, Labour ministers and MPs are all over social media to celebrate this new data from the Office for National Statistics. Former chancellor Rachel Reeves was particularly keen to claim credit for the figures, arguing that “[w]ith the foundations fixed and the fiscal position much strengthened with a declining deficit, Britain’s economy is not just resilient, but strong.” But have the foundations really been fixed?

When Reeves entered the Treasury in July 2024, GDP growth in the previous quarter was 0.5%. The present figure is therefore hardly a big leap from where Britain was two years ago. What has changed, however, is the composition of that growth.

In the three months before the 2024 election, household spending added 1.5% to UK GDP, capital investment added 0.3%, and the Government added just under 0.1%. Fast-forward to today, and the respective numbers are 1.7%, 0.2% and 0.8%. In Q2 2024, the UK cut its spending on imports, which further boosted growth. Last quarter, imports reduced growth by 1.43%.

In a nutshell, growth has become more dependent on household consumption and government spending, and less dependent on investment. This also chimes with the Office for Budget Responsibility’s predictions of a fall in business investment this year and lower fixed investment growth in 2029 and 2030 than in 2024. This is the opposite of what the Government has argued it wants to achieve.

Britain has also become more reliant on imports to sustain its standard of living, which runs counter to the arguments that Reeves herself made ahead of the last election in her 2023 essay on “Securonomics”.

The main bright spot is the growth in exports. Although the UK still does not export enough to pay for its essentials, service exports have increased by 6.7% since the last election, while goods exports — excluding precious metals — have risen by 3%. Interestingly, despite Labour’s current focus on rejoining the European Union, most of the uplift has come from trade with the rest of the world. Trade with the EU, if anything, has been a drag on the rest of the economy. One could argue that this strengthens the case for rejoining the EU, to reverse that trend, or that Britain should double down where it is succeeding.

Households feel overstretched because they are essentially being relied upon to prop up the UK economy. Britons draw on their savings to spend more in shops and pay more tax for the Government to spend on their behalf. This is why the country feels like it is running simply to stand still.

The truth is that the foundations have not really changed. The post-Reeves economy is still fundamentally the same as the pre-Reeves economy, except it is slightly more dependent on consumption and imports. Growth is ticking up, but not in a way that most people will notice. With this in mind, Labour’s celebration of this week’s figures may prove premature.

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Andrew O’Brien is the former Director of Policy at the think tank Demos and currently Head of Secretariat of the Independent Commission on Neighbourhoods. He writes in a personal capacity.

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