UK finance ministry defends fiscal stability ahead of likely leadership transition

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Highlights

Burnham will be formally named Labour leader Friday and prime minister on July 20, aiming to drive growth and devolve power from London.
Britain's economy under Reeves grew faster than most G7 European peers since mid-2024 but still lags behind the U.S. and Canada.
Reeves will reaffirm support for a closer EU economic relationship and broader AI adoption, while successors Miliband, McFadden, and Streeting are seen as frontrunners.

Reeves sets out fiscal case before transition

As reported by Reuters, Reeves says the economy is strong because of the choices made since Labour came to power under Keir Starmer two years ago, and she adds that the government is making progress on its promises of change.

In a preview of her annual Mansion House speech to the finance industry, Reeves says that change is only possible if Britain maintains the credibility it has earned and the stability it has built, with growth and opportunity across towns, cities and regions of the UK.

Burnham is expected to be formally announced as Labour leader on Friday and is due to be officially named prime minister on July 20. He has set out ambitions to drive what he calls good growth in every postcode, speed up the transfer of power away from London and expand social housing.

Economic backdrop clouds handover

Burnham says his plans remain within the fiscal rules set out by Reeves and within Labour's 2024 election manifesto, which rules out tax increases on working people.

Britain's economic performance under Reeves falls short of early hopes to kickstart growth, although it outpaces European peers in the Group of Seven advanced economies since mid-2024 while still trailing the U.S. and Canada. Reeves' successor is also unlikely to face an easier environment, as a weaker growth outlook and rising inflationary pressure, compounded by renewed conflict in the Middle East, weigh on the public finances.

In her speech, Reeves will also restate support for the closest possible economic relationship with the European Union and for wider adoption of AI technology, the finance ministry says. Energy Secretary Ed Miliband is the bookmakers' favourite to succeed her, while Pat McFadden and Wes Streeting are also seen as contenders.

Our earlier coverage of the fiscal pressures facing a future Labour government examined how high UK debt and defence demands could force difficult choices on borrowing and spending. We noted that Labour has repeatedly struggled to reconcile growth-led spending plans with periods when markets and public finances require restraint, and that the current backdrop could test Andy Burnham’s ability to stick to tight fiscal rules.

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