As growth forecasts fall, the pound drops and bond yields rise, the Chancellor looks set for a tough 2025 – and that’s before the Trump presidency becomes a reality with all the turmoil that creates, from trade tariffs to further geopolitical instability.
It’s worth noting that a few headlines in the last few days have drawn false parallels with the disastrous mini-Budget of Liz Truss and Kwasi Kwarteng. While the interest paid on Government borrowing has crept up to levels last seen in the late 1990s, they have not increased by 50 per cent as they did in the wake of the 2022 mini-Budget – and, unlike then, there’s been no effect on mortgage rates.
One of the biggest economic problems is also political – it’s the lack of a feelgood factor. People do not trust politicians to make their lives better, and the evidence of the last 15 years is that their distrust is justified. Like business confidence, consumer confidence is fragile – as a result of both hard-pressed household finances and the gloomy outlook.
In recent years, private sector rents, in particular, have rocketed above inflation – average UK private rents increased by 9.1 per cent in the last year. Research published this week by the Resolution Foundation shows the UK is an outlier with UK housing costs “44 per cent above the average across advanced economies in the OECD”.
Labour has also written to regulators (including Ofwat, Ofgem, and the Financial Conduct Authority) for ideas to boost growth, with the inference that regulation inhibits growth and stripping away undue restrictions on business increases it.
Capping costs would be politically popular – a majority of Conservative and Reform voters back the public ownership of water and energy, which is itself a reflection of public frustration at rip-off utility bills post-privatisation.
Whether the Bank would be amenable to such a step in the face of market turbulence may depend on whether the recent jitters turn into a full-blown global economic crisis – and that may be dependent on the early decisions of the incoming Trump presidency.
Rebel Labour MP breaks ranks with Starmer to call for grooming gangs inquiry
Read MoreThe assessment of the Office for Budget Responsibility was that in the long run, Brexit will reduce our overall output by around 4 per cent compared to had we remained in the EU. Given the precarity of the UK economy, joining a customs union with the EU (as Turkiye has) and/or the single market (as non-EU members Switzerland and Norway have) would provide an immediate boost.
Labour has to confront some tough choices in the months ahead. There is no capacity for further cuts to public services – they have been slashed to the bone already, and there are huge backlogs and staff shortages. And there is no fat to be trimmed on people’s living standards, with record numbers of families homeless and poverty rising. The electoral consequences of a new round of austerity would be terminal for Labour. The backlash from the cut to winter fuel payments show there is no appetite for that.
Andrew Fisher is a former executive director of policy for the Labour Party
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