The Guardian view on the IMF’s warning: Britain’s economy runs hot for profits, cold for pay

‘In opposition, Rachel Reeves promised to review £174bn of tax reliefs, many of which channel “social spending” into asset prices – such as pension subsidies and capital-gains exemptions. She should keep that promise, and look at wealth taxes.’ Photograph: Carl Court/Getty Images

Bloomberg’s headline said it all: “UK Faces Worst G-7 Inflation and Flat Living Standards, IMF Says”. The International Monetary Fund warns that inflation will be higher in the UK than in any other major advanced economy – including in the US, where Donald Trump’s tariffs are driving up costs for American consumers. This while GDP growth per head crawls at 0.4%, the weakest of any major economy. Real wages have stagnated for 11 months. Meanwhile, official figures show that unemployment has climbed to 4.8%, the highest since spring 2021. Forget talk of Britain’s “upgraded growth”; the economy, under Labour, is running hot only for those collecting profits.

The Joseph Rowntree Foundation (JRF) projects that by 2029 average disposable incomes will be £570 lower than today, a fall of 1.3% – the sharpest drop in living standards since records began in 1961. This isn’t a simple case of prices getting ahead of demand. What Britain faces is profit inflation: prices are rising while wages stand still. As Lord Keynes noted, this is a transfer from labour to capital – an increase in mark-ups, not in productivity.