It has been a wild January for Rachel Reeves and frankly for economics in the UK and the world.

When Labour swept to victory last summer, Reeves pledged she would be an “iron” chancellor, reining in public spending and improving the lives of working people through growing the economy. Without solid public finances, she argued, the government couldn’t achieve any of its other aims.

This month has tested that plan.

It started off with a global bond market tantrum – UK borrowing costs hit their highest level for several years and the pound fell sharply.

Some argued that Reeves’s Budget decisions had made the UK more vulnerable to such shocks. The prime minister was forced to confirm Reeves had his backing after political opponents called for her resignation.

The market turbulence sparked concerns that a verdict of sorts was being made on the chancellor.

Reeves has pledged not to borrow to fund day-to-day spending and to get debt falling as a share of national income by the end of this Parliament. That meant, the rise in global and UK debt interest costs would require some spending cuts.

The message was sent out that the government, with its massive majority, could do and would do what it takes to keep to the self-imposed rules, which it said were “non-negotiable”.

The markets have now recovered all their negative moves. Short term and long term government borrowing costs are all lower than at the beginning of the year.

While the “gilt crisis” hyperbole was overdone, there have been consequences.

The chancellor sped up an already planned “drumbeat” of pro-growth measures, culminating in this week’s speech. Reeves’s counsel of doom and warnings about black holes and pain has been replaced by a promise of an investment boom.

She has vowed a new runway at Heathrow, visas for those with AI and life science skills and said she would ease the non-dom ban to allow a more generous phase out of tax benefits.

Alongside this are plans to make it easier to build, delays to new rules on banks and the ousting of the boss of the competition regulator, which shows she’s serious on growth. As Meatloaf might have scripted for her: “I would do anything for growth”.

But Reeves’s plans are not yet a fully fledged growth plan. Her announcements signal that she is willing to take a series of political hits to foster long term growth.

The chancellor will deploy the near total executive power from her party’s commons majority to flatten the sort of opposition that has prevented or critically delayed these sorts of plans in the past.

Some outside advisers who support the chancellor say that stability is not enough, and nor is planning, and nor is deregulation.

Reeves has not pledged any allocation of public money to these grand projects.

Heathrow boss Thomas Woldbye sounded a little coy after plans for a third runway were confirmed, saying they would not spend more money on it unless they really believed it was going to happen.

“This will take years, it will take what I call Churchillian resolve and lots of ingenuity but we can trust a government that will be with us for many years to deliver this,” he told the BBC.

Reeves is focusing on a very specific type of growth – increasing the supply of goods and services. She believes a lack of this supply side growth has held back the UK, and she is on a mission to remove barriers, and open new markets.

For example, Reeves is very concerned about small businesses who have told her they have given up on exporting to the EU, because post Brexit it is now easier to export to the US.

At a meeting last week, one business told the chancellor that exports to Europe meant for Christmas, had only just arrived.

The problem is that while the chancellor awaits a long term growth spurt, she has prioritised stabilising public finances through significant tax rises.

In April, employers will be hit with an increase in national insurance payments and a higher minimum wage. These costs could be passed on in price rises meaning inflation – already higher than target at 2.5%, could remain sticky.

Reeves would have preferred employers to squeeze pay settlements rather than raise prices or cut staff.

Retail and hospitality businesses using low wage labour will be most impacted by the bumper rise in minimum wages. Downing Street insiders acknowledge that many domestic business bosses are “grumpy” as they put it.

The concern is whether the impact will show up in higher unemployment. At last October’s Budget, the government’s independent forecaster the Office for Budget Responsibility (OBR) predicted extra government spending would help boost the economy and bring unemployment down to 4% this year. Some outside forecasters now think it will top 5%.

It is a critical few months for the animal spirits in the economy to reignite.

But how far is Rachel Reeves willing to push this pro-growth agenda?

Will she follow the US away from the decarbonisation path to benefit from cheaper hydrocarbon prices promised by President Trump? Will she accede to construction industry requests to import foreign workers to meet the target to build 1.5 million homes?

Will she push the Brexit reset to remove all the barriers to UK-EU trade in food and farm products, and many goods too? Will she offer Britain to the global tech and pharma industries as a deregulatory haven from the EU and US respectively?

Taken at face value, she will do most of this, with big political consequences. Take the Brexit reset. Cabinet ministers at The World Economic Forum were delighted with the tone of the EU’s new trade chief Maros Sefcovic in his interview with me, saying he was open to Britain joining the Pan-Euro-Mediterranean Convention (PEM).

The arrangement allows for tariff-free trade of some goods from across dozens of countries in Europe, North Africa and the Middle East.

But if the UK demanded effective single market treatment in certain sectors, it would need to follow the EU rule book in those areas. There would be counter asks, such as extending EU fishing arrangements in UK waters, and some sort of youth cultural exchange scheme.

Push is coming to shove on these issues, and the question is whether the chancellor’s pro growth agenda is the overwhelming factor in making decisions. I suspect it is.

However, that approach will require delicate diplomacy in the middle of a potential goods tariff war. If Trump follows through on his threat of a universal tariff then the G7 could decide to coordinate retaliatory tariffs. Does the UK join in?

What if the US decides it wants its allies to help contain China’s tech ascendancy? What if Trump wants to deter the UK from rebuilding free-flowing trade with the EU?

The sudden emergence of China’s AI expertise via DeepSeek underlines how important it is to be nimble. There was only one mention of China in the government’s big AI paper earlier this month – in Science Secretary Peter Kyle’s foreword.

The pharma industry is lobbying the government to quietly open the door for relocation of key top talent into the UK, concerned about the Trump / Robert F Kennedy Jr approach to medicines regulation. Our leading universities are saying that for the first time since Brexit, it’s easier to recruit some of the very best international scientists who are not keen to bring up their families in Trump’s America.

Trump’s decision to abandon Biden’s green subsidies also levels the playing field for net zero investment here.

After a tumultuous start to the year, with the US administration threatening different tariffs almost every day, and tech giant shares falling over concerns they’ve been overvalued in the light of China’s AI app DeepSeek, the UK remains a safe haven for investors.

The self declared iron chancellor remains very attached to stability. But zero growth is a form of stability too. In choppy global seas, going for growth is going to require some very tricky navigation – and it will make some big domestic political waves too.

Top image credit: Reuters

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