Reeves prepares to rally City amid bleak economic data

Rachel Reeves will attempt to shrug off the UK's anaemic economic performance at her Mansion House speech next week, after the latest official figures showed the economy unexpectedly shrank in May.

- Heather Stewart Richard Partington

The chancellor is expected to say the City is at the heart of her vision for sparking economic growth, as she battles to seize back the narrative after worse than expected GDP figures, and a bleak warning from the Office for Budget Responsibility (OBR) about public finances.

The economy shrank by 0.1% in May, the Office for National Statistics said, fuelled by sharp declines in manufacturing and construction. It was the second month of contraction in a row after a 0.3% drop in GDP in April, and amplified speculation that taxes would have to go up again in the autumn budget.

But less than a fortnight after bond markets sold off government debt amid a flurry of speculation about her future, Reeves will claim Labour is creating an economy "where people and businesses look to the future and talk about hope, about opportunity".

She will tell City investors at the Guildhall on Tuesday that workers and businesses can be "assured of the ability of our country to boldly face the challenges ahead".

Business groups have blamed Reeves's £25bn increase in employer national insurance contributions for weighing on growth, at the same time as Donald Trump's trade war sapped confidence.