Rachel Reeves risks economic ‘doom loop’ if spending cuts continue, ex-Bank of England chief economist warns

Rachel Reeves risks entering an economic “doom loop” if she continues to cut spending, a former Bank of England chief economist has warned.

Andy Haldane, who was with the Bank for 32 years until 2021, said the Office for Budget Responsibility’s (OBR) forecast in March could lead to less investment and spending.

He told Sky News’ Politics Hub with Sophy Ridge: “It would be deeply counterproductive to both growth and to the fiscal position if that led to a cutting back on investment and indeed in spending more generally.

“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 OBR will publish an economic and fiscal forecast on 26 March, five months after its last forecast, which said the October budget was unlikely to increase economic growth over the next five years.

Mr Haldane, who became well-known for his speeches during COVID, said his concern depends on how much government spending is cut by the chancellor this spring.

“For me, I think some of the gloom and doom about both the economy and in bond markets is slightly overdone,” he added.

“I think once we get to the second half of the year, the underlying fiscal picture may look somewhat better as might be the underlying growth picture.

“So anything precipitating now, I think, is best avoided.”

The economist, who is now chief executive of the Royal Society for Arts think tank, added the chancellor should not panic because of market reaction to the budget deficit by cutting spending further.

“Definitely not panic,” he said.

“I think the journey we’ve been on, when the government first came in, if anything expectations were a bit too high.

“And I think we saw those expectations punctured pretty quickly.”

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He said he could see pessimism within business and financial markets based on the October budget “being walked back in the remainder of the year as some of the announcements the government has made start to come on stream and be felt, including the fiscal measures in the budget”.

Those fiscal measures are providing “a big boost to growth” this year, exemplified by the International Monetary Fund last week forecasting the UK performing relatively well on the European stage, he said.

Mr Haldane added he thought “there were mistakes in execution” of the autumn budget in October, “but even larger mistakes in the communication around that budget”.

He said: “Personally, I would not have loaded so much onto business at the budget but more importantly still, I would have found a way of communicating that budget in terms that could help businesses see that if not now, then tomorrow, this was a pro-business budget and that wasn’t done and that led to the further breakdown in business confidence.”

In the wide-ranging interview, Mr Haldane also said he thinks Donald Trump “taking an axe to regulation” and thinking “very differently” about how government functions means there is “a chance of real growth and supply side upside from which we will all learn better”.

You can watch the full interview at 7pm on Wednesday on Politics Hub with Sophy Ridge on Sky News.