It is the incumbent killer, from Joe Biden to Rishi Sunak: inflation. Voters will put up with stubborn unemployment and low growth, but they absolutely hate rising prices. Labour has had the good fortune of coming to office as inflation had fallen back to target, a far cry from the double digit price rises of a few years ago. But the British economy is not out of the woods yet.
Inflation has risen to its highest rate since April, driven by a sharp rise in household energy bills. The Consumer Price Index jumped to 2.3 per cent in October, up from 1.7 per cent in September, according to the Office for National Statistics. This represents the biggest month-on-month rise in the rate of inflation for two years.
Gas and electricity prices are the main culprits. Average household energy bills rose by £149 a year in October, after regulator Ofgem raised the cap from £1,568 for a typical dual fuel household to £1,717. This equates a roughly 10% rise.
Once consequence will be felt badly by borrowers. Interest rates, which were increased repeatedly in order to combat inflation, are now likely to fall far more slowly. Those looking to remortgage may not get the deals they were hoping for. Another loser is the public finances. The cost of borrowing is closely impacted by interest rates, and the UK is particularly exposed, given that around a quarter of gilts are indexed-linked.
And this is before the incoming administration of Donald Trump does anything on tariffs. The president-elect has suggested tariffs of 10 to 20 per cent on all US imports. Tariffs are effectively a tax on consumers. Retaliation by the UK and EU would not only produce a trade war, but also raise prices on this side of the Atlantic too.
When Labour came to office, it may have hoped that the worst of the post-Covid, post-full scale Russian invasion of Ukraine economic impacts were behind the UK. And while that may still be the case, there are plenty of economic and geopolitical landmines to come. Bad news for a Government set to borrow billions more over the coming years.
