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Unemployment is up, inflation is up, and wage growth is down. It seems the Labour government’s economic policy is for the birds.

After just over a year in power, Keir Starmer and his Chancellor, Rachel Reeves, have put themselves in a deepening economic crisis that is rapidly eroding both public confidence and internal party unity.

The promise of a new era of “economic responsibility” under Reeves is no longer remotely believable as the country faces a toxic brew of rising unemployment, slowing wage growth, stubborn inflation, and negative economic growth.

The latest figures from the Office for National Statistics (ONS) paint a grim picture:

• Unemployment rose to 4.7 per cent in the three months to May, the highest level since June 2021.
• Pay growth fell from 5.3 per cent to five per cent, with private sector pay decelerating sharply to 3.7 per cent.
• The number of job vacancies continued its relentless three-year slide, falling for the 36th consecutive month to just 727,000.

For an administration that swept into power promising a “fairer, greener future,” this is not just disappointing—it’s dangerous.

Inflation returns—and with it, pain for households

Adding insult to injury, inflation jumped unexpectedly to 3.6 per cent in June, well above the Bank of England’s two per cent target and the highest it has been since January 2024.

The pressure on working people remains acute: food prices are up 4.5 per cent, rent inflation is at 6.7 per cent, and petrol and transport costs continue to climb.

This is not just an abstract economic trend—it’s a daily reality for millions of people whose wages, though technically still rising year-on-year, are being eaten away by elevated living costs.

Bartenders eating sweetcorn and pasta. Shoppers skipping coffee and beer. Drivers hesitating to use their cars. These are not fringe anecdotes; they reflect a creeping degradation in the standard of living that Labour promised to reverse.

Instead, the government has found itself defending a spiralling economy.

The interest rate trap

To make matters worse, Labour’s room for manoeuvre is being constrained by the Bank of England’s monetary policy dilemmas.

With growth in retreat—April and May saw contractions of 0.3 per cent and 0.1 per cent, respectively—and inflation on the rise, the Bank faces a bind: cut interest rates to boost demand – and risk stoking inflation; or hold rates steady – and prolong economic stagnation.

While many analysts are still predicting at least one rate cut in August, others warn that persistent price pressures—fuelled in part by tax increases and higher business costs—could force a more cautious approach.

And Reeves’s decision to proceed with National Insurance hikes and an above-inflation rise in the minimum wage, though arguably defensible on fairness grounds, is believed to be contributing to a climate of reduced business hiring and headcount cuts.

A year in, Labour has lost its grip

Labour’s defenders might plead that this is a difficult global environment, with inflation still elevated in many developed economies and the fallout from the energy shocks of 2022 still lingering.

But those arguments are wearing thin.

The party has been in office for more than a year—long enough to establish credibility, direction, and a clear plan for economic stability. Instead, there is growing unease that Reeves and Starmer have simply swapped Tory austerity rhetoric for technocratic ambiguity, all while economic fundamentals worsen.

Worse, the government’s response feels neither urgent nor imaginative.

In her Mansion House speech, Reeves emphasized growth but offered little by way of concrete new ideas.

Her pitch that financial markets should “shift the narrative” around savers investing in equities was tone-deaf in the context of real economic hardship and rising unemployment.

Likewise, vague promises to “put money into people’s pockets” ring hollow when household budgets are being gutted by higher rents, rising food prices, and stagnating wages.

The political cost: internal dissent and party fracture

The political consequences of this economic drift are already being felt inside Labour’s own ranks.

Starmer’s crackdown on dissent—whether over Gaza, the economy, or broader policy direction—has created a fractious internal environment.

With the economy faltering and polling beginning to tighten, MPs who were once silent or cautiously loyal are now questioning the wisdom of toeing the leadership line.

If Labour’s central promise—to deliver economic competence and improve living standards—is failing, then what exactly is the point of swallowing the party leadership’s edicts on unity and message discipline?

Backbenchers and trade union allies, already unhappy with Labour’s triangulation on workers’ rights and foreign policy, will have fresh cause to challenge a strategy that is yielding neither political cover nor economic results.

Why, they might reasonably ask, should they support a government that appears more focused on punishing internal critics than on helping the public weather a worsening cost-of-living storm?

Growth, or just a new brand of austerity?

The bigger worry is that Labour’s economic stance increasingly resembles a softer version of Tory-era fiscal conservatism.

Reeves has all but ruled out significant borrowing for investment, preferring instead to stick to “fiscal rules” that were designed for a completely different set of economic circumstances.

Her upcoming autumn budget is expected to include tax rises—potentially necessary to plug gaps in public finances, but politically fraught amid weak growth and rising joblessness.

The result is paralysis.

Labour is boxed in: unwilling to borrow to spend, unable to cut taxes without worsening the deficit, and afraid of inflationary risks that further constrain bold action.

The government has no clear answer to the question: how will it kickstart real, equitable economic growth?

There may be trouble ahead…

After just a year in power, the Labour government is beginning to feel stale, defensive, and increasingly out of touch with the economic mood of the country.

While it may have inherited a weak hand from the Conservatives, the party’s failure to offer a compelling economic alternative—or even to arrest the decline—will cost it dearly if not corrected soon.

Starmer’s harsh discipline toward dissenting MPs may have worked when riding high in the polls, but economic hardship has a way of emboldening critics and eroding unity.

Labour’s internal tensions will only intensify if the leadership continues to ignore valid criticisms of its economic approach.

If Labour cannot deliver on the most basic expectation—economic improvement—then its mandate will continue to erode far faster than it was won.

The time for excuses has passed.

The country needs direction.

So far, all it has received is drift.

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