By all means raise a glass of bubbly, chancellor… but beware of boosterism

Rachel Reeves could be forgiven for allowing herself and her team a glass of cava or prosecco today – assuming, that is, the chancellor long ago forsook champagne in pursuit of a cheaper alternative. The GDP figure is a cause for celebration. The UK economy grew by 0.7 per cent in the first quarter of the year, the fastest rate for a year.

It was unexpected, above the 0.6 per cent predicted by economists in a Reuters poll. It might be small, 0.1 per cent, but it’s a boost nonetheless. It’s also significantly higher than the dismal 0.1 per cent expansion in the final quarter of last year.

Cue the fizz – and cue Reeves declaring the economy is “beginning to turn a corner”. If anything, Sir Keir Starmer was more ecstatic, hailing the news as “very good for working people across the country”, and claiming it showed “the strength and resilience of the British economy”.

To someone not used to imparting hyperbole and getting carried away, you want to say, “Steady on Keir – it is good, but not that good.”

First, though, her reaction suggests that Reeves might have absorbed a lesson from the previous near 12 months, which is that she is being positive. Not much, admittedly, but the doom and gloom that seemed to cloak her every utterance has vanished. That changed after her first Budget, when having been pilloried to the heavens for raising employer’s national insurance and defending it on the grounds of needing to bring in more revenue and hitting those who could afford to pay, she switched to a growth agenda. She went from talking down the UK’s prospects to bigging them up.

Now, armed with a healthy number, Reeves is able to continue in the same vein, except she has something tangible to point to. Back then, the common complaint was that the government was promoting doom and gloom. Then they shifted, but without any corroboration, and the rhetoric sounded empty. Today, they have their ammunition.

But Reeves and Starmer must be mindful of the danger of slipping into boosterism. We’ve had one recent premier who brushed aside reality and careered along making ridiculous utterances. They are not there yet, but surely they do not wish to borrow from the Boris Johnson phrasebook.

Without seeking to rain on their parade, they do need to heed the old saying that one swallow does not make a summer. The GDP expansion relates to the period before Donald Trump dropped his tariffs bomb. It is likely that firms who feared the new US president would be true to his word and increase customs charges got in early and moved goods across before he made his announcement.

That was one of the claims made today against Reeves – although the counter is the sense that tariffs was not a hot topic. It’s true Trump did refer to them repeatedly during his election campaign, but businesses were not especially exercised about them, which is why his press conference, complete with the list of countries to be hit and the size of the proposed rises, was a total shock.

Whatever the truth, the fact is that tariffs are going up, and while the hikes may not turn out to be as high as Trump proclaimed on Liberation Day, thanks to climbdowns and the striking of, so far, limited trade deals, they are still climbing and he has sparked global uncertainty. Going forward, the world picture looks far from rosy.

As well as net trade, the services sector and higher investment were behind the rebound, according to the Office for National Statistics. This last one appears peculiar, given the prevailing private sector business mood. Paul Dales, economist at the Capital Economics consultancy, was one quick to seize on the anomaly, commenting that the 5.9 per cent increase in business investment was “completely at odds with the plunge in business sentiment”.

Again, it’s in the past. It’s the future that Reeves and Starmer should be focusing on.

Here, the Bank of England had previously warned first-quarter growth is likely to be “significantly above” underlying economic momentum. A one-off, in other words.

What concerned the Bank were low productivity and high borrowing costs. The Bank is moving against the latter, cutting interest rates – but that constant worry about a country that is not performing as it should remains.

Doubtless, the Bank will be dismissed as a party-pooper. There is another oddity. We are being told repeatedly at the moment to prepare for yet further tax rises, that businesses are braced for another round, that the chancellor has run out of wriggle-room, that she will have no choice. Such messaging is originating from somewhere. Why, if the economy is in better fettle, should they be necessary?

Just asking. By all means, have another glass.