Davos Diplomacy: Can Rachel Reeves woo investors to boost UK growth?

Rachel Reeves’s puffer coat will have no doubt protected her from the chill winds this week at the World Economic Forum in Davos, Switzerland, but she also knows it will take more than a warm coat to shield her from the very chilly economic draughts playing havoc with economies around the world.

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For Reeves, her first visit to the Forum as Chancellor of the Exchequer was perhaps a release from the barrage of criticism at home. Instead, she’s been rubbing shoulders with finance ministers and international leaders whose own economies are buffeted by global headwinds. Under these shared circumstances, the UK is not alone.

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Ironically, Reeves arrived in Davos buoyed by a strong performance in the House of Commons last Tuesday. The latest economic figures will have also given the chancellor a degree of comfort, with a slight inflation drop, from 2.6% to 2.5%, and a 0.1% GDP increase in November.

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This is not great news, but things are, at least, heading in the right direction. These figures bode well for a drop in interest rates on February 6.

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Anyone paying attention to the relentless calls for Rachel Reeves's resignation over the past two weeks might be forgiven for thinking a crisis was unfolding. While the economy is far from thriving, it is not in crisis — an assessment echoed by former Tory chancellors Kenneth Clarke and Jeremy Hunt. Their measured remarks arguably carried more weight amid the storm of criticism than the voices of her own supporters.

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However, Rachel Reeves will continue to face criticism at home until she comes up with convincing plans for growth. She and Keir Starmer have repeatedly said our future prosperity depends on it. That’s easy to say, now they need to put flesh on the bones.

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This UK government inherited a country with public finances broken, public services crumbling and more than ten years of an economy flat-lining. Not to mention a pandemic that required money to be printed and the whole country to be propped up. If the chancellor wants to put public finances on a sustainable footing and rebuild vital public services and grow the economy, she could not and cannot avoid making some difficult decisions.

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Businesses understandably criticised the Reeves budget, but they too want a healthy, well-educated workforce so perhaps they should acknowledge that the money must come from somewhere. And perhaps they might ask: if not from them from whom?

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Reeves did make avoidable errors.?? The winter fuel allowance was never a fair or sensible policy but to get rid of it without warning caused her immeasurable, unnecessary harm.?? The Waspi compensation falls into that bracket too. Even if properly explained, most people will recognise it was the right thing to do, especially as pensions will rise by ￡900 next year, and over four million children in this country are living in poverty. There is no magic money tree, so she must prioritise.

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The chancellor’s fortunes will turn when people start feeling better about life, have more money in their pocket, enjoy greater job security, and see increased investment in infrastructure. If growth doesn’t materialise, Rachel Reeves will have to cut spending and/or raise taxes. My guess is she is spending every waking minute in Davos wooing investors to the UK – they will be the partners in growth she so desperately needs.

Catherine MacLeod, senior adviser, Charlotte Street Partners