Chancellor responds to GDP figures - Q1 2026 + other responses

GDP monthly estimate, UK: March 2026

Chancellor of the Exchequer, Rachel Reeves said:   

“Today's figures show the Government has the right economic plan. The choices I have made as Chancellor mean our economy is in a stronger position as we deal with the costs of the war in Iran.

“Now is not the time to put our economic stability at risk. To do so would leave families and business worse off. Instead, this Government is getting on with the job of building an economy that is stronger, more resilient, and prepared for the future.”

Conservative response to GDP figures

Sir Mel Stride MP, Shadow Chancellor of the Exchequer, said:

“The chaos surrounding the Labour leadership is destabilising Britain's economy.

“This week, borrowing costs hit their highest level in thirty years as Labour leadership contenders competed to promise even more spending, borrowing and fantasy economics.

“Only the Conservatives have a serious plan to Get Britain Working Again and to fix the public finances through our Golden Economic Rule.”

ENDS

Notes to Editors:

Borrowing costs are rising as Labour tear themselves apart:

• Borrowing costs have surged following Labour chaos, hitting their highest levels for thirty years. On 12 May 2026, yields on 10-year gilts rose to 5.107 per cent – the highest level since 2008, while yields on 30-year gilts hit 5.772 per cent – the highest level since 1998 (MarketWatch, 10 Year Gilt, 12 May 2026; MarketWatch, 30 Year Gilt, 12 May 2026).

• Paul Johnson, former director of the Institute for Fiscal Studies (IFS), said ‘the only reset being achieved at the moment is higher borrowing costs'. ‘Starmer and Reeves are not kidding when they say this political uncertainty causes economic damage. The only “reset” being achieved at the moment is higher borrowing costs. Result? We're all worse off. So deeply depressing' (Paul Johnson, Twitter, 12 May 2026, link).

• Helen Millar, director of the IFS, said ‘UK gilt yields are higher than other G7 countries' due to ‘market concerns about the stability and sustainability of UK fiscal policy'. ‘UK gilt yields are higher than other G7 countries, in part reflecting market concerns about the stability & sustainability of UK fiscal policy. Last year, 8 per cent of government spending (~£110bn) was on debt interest; it was 4.4 per cent on the eve of the pandemic' (Helen Miller, Twitter, 12 May 2026, link).

• Simon French, chief economist at Panmure Liberum, said ‘a domestic influence emerging on fears of more issuance/ higher inflation' is driving higher yields. ‘Yes, a large part of the Gilt move since late Jan is a result of events in the Middle East, but definitely a domestic influence emerging on fears of more issuance/ higher inflation. Anyone emerging from the pack to challenge Starmer had better have a decent story on growth and price growth to tell, as the "Eye of Mordor" of bond markets is shifting....' (Simon French, Twitter, 12 May 2026, link).

• Lee Hardman, senior currency analyst for MUFG, said ‘political uncertainty' is ‘negative for the pound and gilts'. HARDMAN: ‘The latest developments increasingly look like the end of the road for Keir Starmer as prime minister. A leadership contest . . . will add to political uncertainty in the near term which is negative for the pound and gilts' (The Financial Times, 12 May 2026, link).

• John Wyn-Evans, analyst at Rathbones, said ‘any indication that fiscal discipline could be diluted' risks ‘unsettling sentiment' among investors. WYN-EVANS: ‘For gilt markets in particular, the tone matters as much as the content. Any indication that fiscal discipline could be diluted, whether through unfunded commitments or ambiguous language around future spending and taxation, would risk unsettling sentiment' (The Telegraph, 13 May 2026, link).

• Labour MPs argue ‘the markets will have to fall into line' with more tax, borrowing and spending if a new Labour leader is selected. When asked whether markets might respond negatively to more tax, borrowing and spending, Paula Barker MP said ‘the markets will have to fall into line', adding that investors would view the UK as ‘the best place to be' if the government unveiled ‘progressive policies that do speak to our communities' (City AM, 12 May 2026, link). 

This comes as Labour's choices are weakening the economy:

• The IMF downgraded the UK's growth forecast by 0.5 percentage points compared to the previous forecast – the largest downgrade in the G7. The IMF downgraded the UK's growth forecast by 0.5 percentage points to 0.8 per cent – compared to 0.2 percentage points for the Euro area (IMF, World Economic Outlook, 13 April 2026, archived).

• Inflation is above target, having remained above the Bank of England's target every month of 2025.Having inherited inflation bang on the 2.0 per cent target, new figures show it rose by 3.3 per cent in the 12 months to March 2026, meaning inflation has exceeded the Bank of England's target every month since Labour's first Budget (ONS, Consumer Price Inflation, UK: March 2026, 22 April 2026, link).

• The unemployment rate is 4.9 per cent and the Office for Budget Responsibility (OBR) have raised the unemployment rate forecast for 2026, 2027 and 2028. In March 2026, the OBR raised the forecast unemployment rate in 2026, 2027 and 2028 – hitting 5.3 per cent in 2026. The unemployment rate for 16 and over hit 4.9 per cent in December 2025 to February 2026, up from 4.2 per cent at the election (OBR, Economic and Fiscal Outlook, 3 March 2026, link; ONS, Labour market overview, UK: April 2026, 21 April 2026, link).

• The 16-24 youth unemployment rate is 15.8 per cent, up 2.4 percentage points on Labour's watch. The 16-24 unemployment rate was 15.8 per cent in December 2025 to February 2026, up from 13.4 in April to June 2024 when the Conservatives left office (ONS, Labour market overview, UK: April 2026, 21 April 2026, link).

• The tax burden is set to reach a historic high of 38.5 per cent of GDP, eroding hardworking people's payslips and punishing businesses. Labour's first two Budgets have increased taxes by £36 billion and £26 billion respectively, pushing the tax burden to a historic high of 38.5 per cent of GDP (OBR, Economic and Fiscal Outlook, 3 March 2026, link).

• Borrowing has reached its highest level since 2010, outside the pandemic, meaning annual debt interest payments are forecast to hit £140 billion. Rachel Reeves promised not to ‘fiddle the figures' but at her first Budget, she announced a new fiscal rule meaning borrowing is expected to reach 97.3 per cent of GDP by 2030-31, the highest level seen outside the pandemic since 2010, with annual debt interest payments forecast to be £137.1 billion in 2030-31 (OBR, Economic and Fiscal Outlook, 3 March 2026, link; Treasury, Autumn Budget 2024, 30 October 2024, link; Bloomberg, 3 November 2023, link; Philip Aldrick, X, 3 August 2024, link).

• Fuel prices have increased at their fastest rate since 2022. In the last 12 months, petrol prices have increased by 24.5 pence per litre to 156.81 per litre and diesel prices have increased by 48.9 pence per litre to 188.14 pence per litre (DESNZ, Weekly road fuel prices, 12 May 2026, link).

• The Bank of England noted that the conflict in the Middle East came when ‘growth was below potential' and there is ‘spare capacity' – for example, high economic inactivity – in the economy. ‘In contrast to the energy price shock in 2022, this shock was occurring at a point when growth was below potential and the economy was operating with a margin of spare capacity' (Bank of England, Monetary Policy Summary, March 2026, 19 March 2026, link).

• Andrew Bailey said the ‘recent experience of high inflation' make Britain ‘more sensitive to a new inflationary shock'. BAILEY: ‘The recent experience of high inflation may also make households and businesses more sensitive to a new inflationary shock' (Bank of England, Monetary Policy Summary, March 2026, 19 March 2026, link)

TUC

Commenting ONS figures showing quarterly GDP growing by 0.6% in the first quarter of 2026, and by  0.3% in March, TUC General Secretary Paul Nowak said: 

“It's positive that our economy was stronger at the start of the year. 

“But after years of falling living standards, working people need both sustained growth and action to ensure that gains are fairly shared.

“Families and businesses are battling against a life-shattering cost of living crisis, and fear their situation will only get worse due to Donald Trump's illegal war in Iran.

“So as rising petrol, gas and mortgage costs heap more pressure on family budgets, the government must be laser focused on jobs and living standards. Working people, their families and communities must be at the centre of every decision.

“That means action must be taken now to protect families in the face of rising bills, and to support more young people into good jobs and training. 

“And banks' bumper profits must be taxed fairly, to raise the funds needed to shield households and firms from the damaging impacts of the war.”

CBI

Ben Jones, CBI Senior Lead Economist, said:

“The rebound in GDP growth in the first quarter looks unusually strong, largely reflecting February's outsized gain. This pace of growth is unlikely to be sustained, particularly as the effects of the Iran conflict begin to be felt. 

“With higher fuel and energy costs feeding through and disruption to global supply chains set to intensify the longer the Strait of Hormuz remains closed, pressures on businesses will mount, creating headwinds that are likely to weigh on growth through the remainder of 2026.” 

“As the economic impact of the conflict becomes clearer, businesses will be looking to government to take further action to tackle the cost of doing business. This includes taking policy-related costs off business electricity bills, tangibly cutting the regulatory burden, and finding appropriate landing zones on the Employment Rights Act.” 

British Chambers of Commerce

Responding to the latest GDP data published by the Office for National Statistics this morning, Stuart Morrison, Research Manager at the British Chambers of Commerce said:  

“Growth of 0.6% in Q1, shows the initial optimism we heard from our members at the start of the year was well grounded.  

“Meanwhile GDP rising by 0.3% in March itself also suggests the continued resilience of business in the face of economic shocks. But firms are concerned the full impact of the Iran conflict will start to show in the coming months.  

“Businesses are facing huge cost pressures. Our latest survey shows 73% citing labour costs and 52% citing energy costs as price drivers, even before the escalation in the Middle East. Business confidence remains low and firms are struggling to invest.  

“Recent domestic political uncertainty only adds to business concerns. But the firms we represent are not focused on personalities; they are interested in policies. Yesterday's King's Speech provided some positive signals for business, with a pledge to tackle late payments, simply trade and strengthen apprenticeships.   

“But the government must go further. To grow our economy in challenging times, ministers must deliver in partnership with business. That can only come through supporting investment, boosting productivity, and getting more firms exporting.”