But Reeves continued to indicate that she was likely to increase income tax rates.
In her Downing Street press conference, she said: “It is already clear that the productivity performance…is weaker than previously thought.”
She added: “What I want people to understand ahead of that Budget, is the circumstances we face.”
In the end, Reeves backed away from hiking income tax rates, although her Budget still contained £26bn of tax rises, including by freezing income tax thresholds for a further three years, dragging more people into higher tax bands over time.
Conservative shadow chancellor Sir Mel Stride said that while Reeves had repeatedly talked about the productivity downgrade, she had “failed to mention” the offsetting effect of higher wages on the forecast.
He added: “It was all a smokescreen. Labour knew all along that they did not need to raise taxes and break their promises.
“It appears the country was deliberately misled to try to explain away Labour’s decision to spend billions more on welfare.”
Asked whether Reeves had misled the public and the financial markets, the PM’s spokesperson said: “I don’t accept that.”
He added: “As she [Reeves] set out in the speech that she gave here (Downing Street), she talked about the challenges the country was facing and she set out her decisions incredibly clearly at the Budget.”
He added the government had increased the headroom for the Treasury to meet the fiscal rules, which would creates “certainty and stability for business”.
