Ever since Labour took power in July, we’ve been overdosing on economic doom and gloom. Just about everything Chancellor Rachel Reeves touches falls to pieces.
Growth has collapsed. After rising 1.1% in the first half of the year, GDP flatlined in the first three months of the Labour government, then shrank in October and November.
Government borrowing costs have rocketed to the highest level since the financial crisis in 2008.
Earlier this week, yields on 10-year gilt yields hit 4.9%. This adds another £10billion a year to our annual borrowing costs, stretching Labour’s “iron-clad” fiscal rules to breaking point.
After yesterday’s inflation figure, they eased to just 4.69%.
Which is potentially good news because it means we could escape more tax hikes or spending cuts.
But there’s a problem. And as ever these days, Reeves is at the heart of it.
Inflation may have dipped in December, but it’s expected to start climbing again in 2025.
Pantheon Macroeconomics said prices will jump to 2.8% in January. By April, inflation will be up to 3.2%.
When that happens, today’s dip will be a distant memory.
Other countries are seeing inflation climb too. But Reeves has made ours worse.
Her Budget will be inflationary as employers pass on her national insurance hike to customers in the shape of higher prices.
Slapping VAT on private school fees will also drive up inflation. As will Reeves’ decision to increase the national minimum wage by inflation-busting amounts.
The inflation-busting £9billion public sector pay hike she pushed through straight after the election will add to the pressure.
Reeves is also going to spend £70billion from April, throwing yet more fuel onto the fire.
So enjoy today’s good news while it lasts.
As Reeves and PM Keir Starmer keep telling us, they have a Plan for Change. So far, any change has been for the worse.
And it’s not going to get any better. Labour’s plan – such as it is – is going to drive inflation back up just when we thought it was over.
US president-elect Donald Trump is undoubtedly making the situation worse, as his planned tax hikes and trade tariffs will also fuel higher prices.
But Reeves has left us more exposed than any other major country, through her tax and spend splurge.
Inflation is down today but give it time. It’ll be climbing again once Labour’s Plan for Change gets to work. And then we’ll all feel the heat.
