Reeves criticises Russia's 'stagnating' economy as UK growth falters

Chancellor Rachel Reeves on Friday urged further pressure on Moscow’s economy, calling it "stagnating" and "fragile," as the UK simultaneously revealed weak economic growth and mounting fiscal pressures.

Reeves said on X that the government had imposed new sanctions on suppliers to Russia's military and "shadow fleet" and that she had met G7 finance ministers "to ramp up pressure on Russia. United, we stand firm with Ukraine." Her remarks came on the same day official figures showed UK economic activity had come to a virtual standstill in July.

The Office for National Statistics reported that UK real gross domestic product was effectively flat in July after a modest 0.2 percent rise in the three months prior, leaving annual growth at about 0.7 percent for the quarter. The weak performance coincides with a rise in inflation to 3.8 percent in July from 3.6 percent in June and follows five consecutive cuts to the Bank of England’s policy rate, which now stands at 4 percent.

In Moscow, the Bank of Russia moved in the opposite direction on Friday, cutting its benchmark interest rate by one percentage point to 17 percent in a bid to support activity. Russia’s economy has shown slower growth this year: after annual expansion of roughly 4 percent in 2023 and 2024 — driven in part by military spending — GDP growth slowed to about 1.1 percent year on year in the second quarter of 2025.

Inflationary dynamics in the two economies also differ. Russia’s annual inflation has eased substantially from a peak of about 18 percent in April 2022 to roughly 9 percent, while the UK’s headline rate has risen again above the government’s 2 percent target range. Currency moves have further diverged: the rouble has strengthened by about 20 percent against the US dollar since January, helping to boost purchasing power and reduce import costs.

On fuel prices, Reuters and other data show Russian retail petrol costs remain well below UK levels, reflecting the country’s energy resources and subsidies. The notes provided alongside a government calculation put Russian retail fuel at about $0.77 per litre compared with roughly £1.34 ($1.82) per litre in the UK.

Fiscal positions are under scrutiny in both countries. The UK’s public finances look strained after a year of policy reversals and spending commitments by the new government, which forecasters say have widened the deficit. Independent forecasts cited by think tanks and in the political debate put the UK budget deficit for 2024–25 at about £137 billion, or roughly 4.8 percent of GDP. The National Institute of Economic and Social Research (NIESR) warned last month that the Chancellor’s fiscal headroom had narrowed sharply and that she would need to find the equivalent of a 5 pence increase in income tax by the end of the decade to meet her fiscal rules, estimating an annual shortfall of roughly £51 billion by 2029–30 unless spending is reduced or taxes increased.

Russia’s fiscal gap has also widened but remains smaller in dollar terms. Data cited by analysts put the Russian budget deficit at about $58 billion in the first half of 2025, up from $45 billion a year earlier. Reports suggest Moscow may seek to close part of that gap through targeted tax measures, including adjustments to value-added tax rates.

Reeves has said boosting growth is a primary objective for the Treasury and has signalled forthcoming tax reforms ahead of the autumn Budget scheduled for Nov. 26. Labour ministers have faced internal pressure from some MPs to consider additional levies, including proposals for a wealth tax, which Reeves has described as "unproven." Her office is also considering changes to business property taxation aimed at removing "cliff edges" that can discourage expansion and investment.

Analysts and independent institutes cautioned that both countries face trade-offs between supporting growth and controlling inflation. In the UK, the recent Bank Rate cuts were aimed at stimulating activity but have coincided with a rebound in inflation metrics. In Russia, the central bank’s rate cut seeks to revive activity while inflation remains elevated.

The Chancellor’s public criticism of Russia formed part of a broader diplomatic and economic stance: the UK has announced sanctions aimed at firms believed to supply the Russian military and related operations, and Reeves said she coordinated action with G7 counterparts. For the UK domestic audience, the comments underscore a balancing act for policymakers who must address external security concerns while managing slowing growth, rising prices and a pressured fiscal position ahead of the autumn Budget.

As both governments prepare fiscal statements and policy responses, the immediate economic data and independent forecasts are likely to shape the debate over tax policy, public spending and monetary settings in the months ahead.