“Labour’s decision to tax jobs and ramp up borrowing is pushing up costs and stoking inflation – making everyday essentials more expensive.”
UK inflation failed to budge in August, cementing expectations that interest rates will not fall again this year and heaping pressure on the Labour government’s economic stewardship.
Official figures from the Office for National Statistics (ONS) show the consumer prices index rose 3.8% year-on-year and still well above the Bank of England’s 2% target. Food and drink inflation accelerated for a fifth consecutive month to 5.1%, with staples such as vegetables, milk, eggs, cheese and fish leading the increases.
Economists warned that price pressures are no longer a blip. Niesr’s Monica George Michail said the data “confirm inflation remains entrenched,” while Capital Economics’ Paul Dales called the figures “troubling”. Dales added: “We think the upside inflation risks are just too high for the Bank of England to cut interest rates or, more significantly, at the following meeting in November.”
Higher-than-target inflation is also keeping a tight grip on the public purse, since a significant portion of government debt is index-linked. That piles further strain on the Chancellor ahead of the 26 November Budget, with independent economists estimating she will need to raise at least £20bn in taxes to balance the books.
Labour, which keeps insisting it will “bring costs down,” is facing mounting criticism that its own choices have worsened the problem. KPMG UK’s chief economist Yael Selfin said: “The UK has become an outlier in recent months on inflation compared to other major economies. Since April, the rise in inflation has been driven largely by domestic policy choices, including the increase in employers’ National Insurance Contributions. These higher costs have been passed on by businesses to consumers, feeding through into higher headline inflation.” Eurozone inflation has hovered around 2% for most of the year, while US inflation rose to 2.9% in August from 2.7%.
Despite the stickiness of prices, Chancellor Rachel Reeves offered little beyond reassurances. “I know families are finding it tough and that for many the economy feels stuck. That’s why I’m determined to bring costs down and support people who are facing higher bills,” she said. Critics argue that rhetoric without clearer action leaves households exposed and undermines confidence.
City expectations are now set: “City analysts believe that the Bank of England’s monetary policy committee, the nine-member panel that sets the base rate every six weeks, will vote to keep borrowing costs at 4 per cent on Thursday to counteract stubbornly high inflation. Rates are anticipated to remain at that level for the remainder of the year.”
The opposition was blunt. Shadow chancellor Sir Mel Stride said: “Labour’s decision to tax jobs and ramp up borrowing is pushing up costs and stoking inflation – making everyday essentials more expensive.” With real-world prices still rising, that charge is likely to resonate.
Labour’s headaches extend beyond prices. Separate ONS data this week showed unemployment at a four-year high of 4.7% over the past three months, while wage growth also eased. Under the triple lock, the state pension is set to rise by 4.7% (the ONS wage growth measure). The ONS will also publish fresh updates on public finances and retail sales on Friday, offering another test of the government’s claims of economic grip.
In markets, sterling edged 0.05% lower to $1.36, reflecting investor caution as policy credibility, and Labour’s, faces a stubborn inflation reality.
