FEWER than 140 days ago, Rachel Reeves and Sir Keir Starmer were handed the keys to the UK economy.
They promised a smooth journey to prosperity for fed-up families and business leaders left exhausted by the cost-of-living crisis and years of Tory chaos.
Yet the warning lights on the economic dashboard are now flashing brightly and, if Labour is not careful, the party could soon be driven way off course.
INFLATION: The rate of price increases has shot back up to 2.3 per cent, compared to 1.7 per cent in September, official figures showed yesterday.
The increase was largely driven by higher energy prices after the Ofgem energy price cap was lifted. The average household energy bill rose by a punishing ten per cent last month.
Overall, inflation rose by more than economists had predicted and now stands well above the Bank of England’s two per cent target.
While the rate of inflation has significantly slowed since the horrendous 40-year high of 11.1 per cent in October 2022, most household prices have not fallen back to where they were before the cost-of-living crisis and the pandemic.
For example, a loaf of white bread typically cost £1.03 in February 2019 but the average price is now £1.40, according to the Office for National Statistics.
What’s worse is household energy bills are forecast to go up again in January.
And retailers are complaining loudly that Reeves’ recent Budget tax raid on employer National Insurance contributions will result in still higher inflation.
The more it costs to employ staff, the more businesses have to charge their customers.
INTEREST RATES: Reeves cannot flick the switch on lowering interest rates because they are set by the Bank of England.
Its job is to keep inflation at bay, and the biggest weapon it has is high interest rates, which are meant to encourage households to stop spending and save.
Recent higher interest rates have been punishing as they clobbered homeowners with an almost trebling in monthly mortgage costs and made the chances of getting on the property ladder out of the question for cash-squeezed renters.
High interest rates — the current base rate is 4.75 per cent — have also made it more expensive for companies to finance investment, meaning lower economic growth too.
The problem is Andrew Bailey, governor of the Bank of England, said this week that interest rates cuts will be “gradual”, due to the Budget’s inflationary impact.
In other words, Labour’s OWN decisions mean we will all have to put up with higher interest rates for longer.
JOB LOSSES: Britain is famously a nation of shopkeepers, and retail remains the biggest employer in the private sector.
So it is a big problem for Reeves that 90 of the UK’s biggest retail chains sent a letter to the Treasury this week explicitly warning that her £7billion Budget tax raid on the sector will result in job losses and store closures, as well as higher prices.
Politicians often do not seem to worry about retail job losses and closures, reckoning that workers can find another temporary job at another shop.
Except the threat of this retail rebellion is so damaging that insiders at Downing Street were pressuring the likes of Tesco not to sign.
It has become a symbol of a large and still growing business backlash.
There is no better economic indicator of a local town than if its High Street is thriving — or full of boarded-up shops.
The whammy from the Chancellor’s employer NI contribution rise is now threatening the High Street itself.
TRUMP TARIFF WAR: It is not Reeves’ fault — but this is a large orange flashing light for the Chancellor.
Donald Trump has been talking about slapping a ten to 20 per cent tariff on all imports to the US, to help boost American consumption of home-grown products.
Analysts reckoned this week that this could deliver a £20billion blow to our economy — equivalent to 0.9 per cent of our entire gross domestic product.
The US is the UK’s biggest single trading partner, accounting for 22 per cent of our exports, worth £191billion in total.
The whole of the EU is bigger, equivalent to 41.3 per cent, worth £357billion.
The Chancellor, who has already said she wants “free and open trade”, will now have to walk a tightrope of trying to protect trade with both of the EU and US.
Not infuriating Trump by cosying up too much to the EU will be especially hard, given the President-elect’s long-held hostility to what he considers to be a protectionist EU.
If the US hits China with a 60 per cent tariff — as Team Trump suggests — a full-blown global trade war could erupt.
FARMERS: The Chancellor had said she would target her Budget tax rises to fall on the “broadest shoulders”.
But a row has erupted as farmers have been caught up in her inheritance tax raid. Budget watchdog the OBR claims her changes to agricultural property relief will raise £580million a year at most.
The Government claims it will affect just 500 farmers a year — but the Department for Environment, Food and Rural Affairs’ own figures say that two-thirds of the UK’s farms are potentially eligible to be taxed.
In their first protest, 20,000 farmers turned up at Westminster this week.
If the dispute escalates, and angry farmers restrict food supplies, the Government and economy will take a hit.
GROWTH: At her recent Mansion House Speech, the Chancellor used the word “growth” no fewer than 41 times.
So it is a blow that the Budget watchdog’s review has suggested UK growth will actually be lower than it is now at the end of Labour’s five-year term.
Last week, figures showed our economy grew by 0.1 per cent between July and September. And despite the small GDP growth in the third quarter, the economy shrank by 0.1 per cent in September.
Reeves’ big promise of pension and planning reforms, the ripping up of red tape and huge spending on a green energy future is a big expensive bet on the belief investment will lead to future growth.
The next time Brits go to the polls, they will be deciding whether they feel better about the economy and their pockets.
There is a bumpy road ahead for UK families . . . and the Labour Party.
