The news just gets worse for Rachel Reeves. And the rest of us.
Today’s inflation figure is partly of Rachel Reeves’s making, though she will deny it (Image: Getty)
Today we learned that consumer price inflation rose again in July, to 3.8%. That was higher than both June’s 3.6% and the 3.7% analysts had expected. Inflation is now at the highest level for 19 months.
That was back in January 2024, when Rishi Sunak’s Tories were still in power. Sunak took the blame then, so now it’s Reeves’s turn to carry the can. As she should.
The Bank of England (BoE) previously warned that inflation could hit 4% next month. After today, that September figure might be even higher.
While the Chancellor can’t do much about soaring petrol, diesel, food prices and air fares, her disastrous policies have only added fuel to the inflationary fire and made Britons feel poorer, especially pensioners living on fixed incomes.
Food and fuel prices are rising at speed, and these two essentials swallow a disproportionate amount of pensioner incomes.
Reeves’s fingerprints are all over today’s numbers.
Much of today’s pain has been stoked by her own fiscal incontinence. Reeves chose to grant generous public sector pay awards, pushing up wages while productivity goes backwards.
She also increased employers’ National Insurance contributions in her Budget, raising costs for businesses that are now passing them on to consumers. At the same time, she hiked the statutory minimum wage by an inflation-busting 6.7%.
Both have driven up wage inflation, as well as wiping out thousands of businesses, especially in retail and hospitality, and hundreds of thousands of jobs.
The Chancellor insists she is boosting living standards, but legislating for higher pay without the productivity to support it simply feeds inflation.
Especially since businesses cannot afford to fund those government-mandated pay rises, and have been choosing to fire staff instead.
Reeves should be looking to rein in public spending, yet she has done the opposite. The government machine is more bloated than ever, and it’s forcing up inflation.
Labour cannot claim the credit for rising wages without accepting the consequences. The Chancellor’s knee-jerk response this morning was to bang on again about her Plan for Change. Whatever that actually is, it isn’t working.
Higher inflation is not just squeezing households, it is also hitting the government’s own finances. In June, the deficit was a massive £20.7billion, far higher than forecast.
Alarmingly, three-quarters of that mighty sum didn’t go on schools or hospitals, but interest payments on Britain’s colossal debt pile.
We’re borrowing to pay interest on our earlier debts, a sure sign that things are getting out of hand.
Today’s inflation surprise means gilt yields are likely to rise again, driving up the cost of servicing the debt still further.
It also means the Bank of England is unlikely to cut interest rates again this year, after its controversial reduction in July.
Reeves’s already strained sums will get even trickier, just as she tries to patch up the £50billion black hole in her public finances. The more borrowing costs rise, the more pressure she’ll be under to hike taxes.
The Bank of England reckons inflation will fall back after September, but any respite will come too late to spare us a second Budget horrorshow. Once again, the public once again pays for the Chancellor’s mistakes. And not just at the tills.
