If you were Rachel Reeves, you could be forgiven for tearing your hair out. Official figures released yesterday showed that we were starting to see an economic recovery, just before Donald Trump and Benjamin Netanyahu unleashed a new Middle East war and destroyed it.
UK GDP expanded by 0.5 per cent in February, way up on the 0.1 per cent forecast from economists. There was a strong performance in services, manufacturing and construction.
It completes the picture of tentative but convincing economic recovery. Inflation was easing, partly as a result of energy price cuts and other bill freezes announced at the Budget. The cost of borrowing was lower than expected. The headroom on her fiscal rule was up slightly.
We were starting to turn a corner. Things were looking up. And then the war started and everything was blown to smithereens, including our economic rehabilitation.
This will be one of many reasons that the chancellor seemed so frustrated and impatient on her visit to Washington this week. Faced with a series of Trump administration talking points from her interviewer during the Invest In America Forum in Washington, Reeves replied curtly: “It’s not been clear over the last six weeks or so what exactly the aim of this conflict is.”
When she was told that the US blockade was intended to ensure negotiations, her response was withering. “There was a diplomatic channel open, conversations, formal discussions were happening. I think it was a mistake to end those and to enter into conflict.”
This was not just an outburst. It was indicative of a chancellor who is looking more towards Europe than she is the US.
The Chancellor was perfectly clear about her agenda during her Mais lecture last month. “Our fate as a country is inescapably bound with that of Europe,” she said. “Brexit did deep damage.”
She acknowledged the importance of trade deals with the US and others, but felt the need to state the basic economic facts entailed by geography. “No trade deal with any individual nation can outweigh the importance of our relationship to a bloc with which we share a land border, with which our supply chains are closely intertwined, and [which] accounts for almost half our trade”. It is extraordinary that we should have had to wait a decade to find a chancellor willing to describe reality in this way, but there we are. At least we have one now.
Reeves is the key driving force behind the Government’s movement towards the EU. There are two remaining obstacles to this movement. The first is our relationship with the US. The second is our anxiety about immigration.
Until now, there was no choice to be made between Europe and America, quite the opposite in fact. Generations of US administrations urged their British counterparts to be more involved in Europe. They wanted a UK that was embedded in the continent.
This only changed under the Trump government, which views the EU as a kind of geopolitical enemy, an affront to its dream of a world divided into gangster spheres of influence, a planet carved up between the US, China and Russia.
Now Trump tries to destabilise and destroy Europe wherever possible. He and his allies consider the UK an asset they can compete for between geopolitical opponents, the way young siblings might fight over a toy. Britain’s movement towards the EU will therefore trigger more abuse, more histrionics, and quite possibly meaningful retaliation – a rise in tariffs perhaps, or the end of cooperation of certain defence initiatives.
In any other period it would be hard for a chancellor to convince a prime minister to turn towards Europe instead of America. Even Tony Blair, the most europhile prime minister since Edward Heath, would have instinctively faced West given that choice. But things have changed.
Trump’s obvious thuggishness, his hysteria, his unpredictability and his basic lack of good manners make that decision far easier. Reeves’ mission is facilitated by the toxicity and belligerence of the president.
That then leaves the other obstacle: the Home Office. This is a much fiercer and more dangerous problem than the American president.
Shabana Mahmood has enacted a bludgeoning anti-immigration agenda which will starve Britain of skilled labour and global talent for decades to come. Her proposals for workers to be stuck in an administrative limbo for up to 20 years while they wait for indefinite leave to remain will make this country so unattractive that only the very desperate will ever come. It is a vision of self-imposed national poverty.
This approach must be challenged and defeated if Britain is ever going to achieve a proper recovery. The basic reality is that Britain cannot maximise the economic benefits of a close relationship with Europe unless it accepts free movement. You might be able – at a push – to align with bits of the European eco-system. But to properly benefit from the single market you have to sign up to its requirements – the free movement of goods, capital, services and, yes, people.
To do that, you need a government that is prepared to face down the anti-immigration argument, to state clearly and compellingly why we require it if we are to rebuild our economy.
Reeves has so far shown little sign of being prepared to take this next crucial step and make the case for immigration, outside of her push for the UK to sign up to a youth mobility scheme with Europe. She will eventually need to do so. In the long run, it is the only route back to Europe and economic recovery.
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