Business is booming – but inflation’s rising, borrowing’s up, and the Chancellor is boxed in by her own bad fiscal rules

It was all smiles on Monday.

Chancellor Rachel Reeves proudly declared that the UK’s economy is growing faster than any other G7 country — a rare good headline for this government.

But by Thursday, the smile had dropped, the headlines had turned, and Reeves is now facing a sharp reality check that threatens to shatter both her plans and her reputation.

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Let’s break it down:

Inflation up. Again.

April’s inflation rate rose to 3.5 per cent — the highest it has been in more than a year.

It’s still better than the 11 per cent peak we saw in 2022, but the direction of travel is all wrong.

The rise was driven by energy and water bill hikes, food prices, services like restaurants, and even airfares.

While pay is — just about — outpacing inflation for many workers, the cost-of-living pressures haven’t really eased.

Rent, council tax, food, and utilities continue to squeeze budgets, especially for low-income households.

There’s little relief in sight: services inflation is stubborn, and economists warn it could rise further over the coming months.

The Bank of England now looks unlikely to cut interest rates more than once this year.

So much for breathing room.

Borrowing is up — and so is pressure on Reeves

Government borrowing hit £20.2 billion in April — a full £2.3 billion more than expected.

It’s the fourth-highest April total on record, despite Reeves having already introduced £40 billion in tax hikes back in October.

That’s before the pressures of higher defence spending or any reversal of brutal cuts — such as the partial U-turn on winter fuel payments.

Worse still, Reeves is now being pulled in three directions:

1. Stick to her “fiscal rules” (limit borrowing and debt),

2. Raise taxes (after promising not to),

3. Slash spending, possibly including disability benefits — something even her own side is now queasy about.

None of those options are popular. All of them risk political fallout.

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Reeves wrote the rules… now they’re biting her

Here’s the irony: Reeves’ famed “fiscal responsibility” mantra was meant to win trust and calm the markets.

But the rules she set — including capping borrowing and reducing debt as a share of GDP — leave her zero flexibility when the real world doesn’t co-operate.

Now inflation’s up, borrowing’s up, and she has boxed herself in.

Cutting disability benefits would be politically toxic.

But raising taxes after pledging not to? Equally toxic.

And breaking her rules outright? That would blow a hole in her credibility.

It’s a trap of her own making.

What NOT to do

This Site has a few recommendations – if the Chancellor will listen (of course we do and of course she won’t – but it will be fun comparing these with whatever mess she concocts next). Let’s start with what she shouldn’t do:

• Don’t cut disability benefits. These are already at the lowest levels they’ve been in generations. Further cuts would harm the most vulnerable, deepen inequality, and cost more in knock-on social consequences.

• Don’t blindly hike regressive taxes. Increases in VAT, fuel duty, or National Insurance will hit working people hardest, while letting the ultra-wealthy off the hook — again.

What SHOULD Reeves do?

1. Scrap the arbitrary fiscal rules. They serve markets, not people — and they’re shackling the government’s ability to respond to real-world crises.

2. Raise taxes — but on wealth, not work.

   • Close loopholes that allow the rich to dodge inheritance and capital gains taxes.

   • Implement a serious windfall tax on profiteering corporations.

   • Bring in a wealth tax on assets, not incomes.

3. Invest in public services and infrastructure. That stimulates growth, creates jobs, and boosts tax receipts — the only sustainable way to reduce borrowing.

4. Tell the truth. Remind the public that it was Tory mismanagement that wrecked the economy. Voters aren’t stupid. They’ll respect honesty more than spin.

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A final thought

Reeves was all smiles when the GDP headline broke — but three days later, reality came crashing down.

The economy may be “growing,” but that doesn’t mean people are better off.

With inflation creeping back up, borrowing rising, and Reeves boxed in by her own handcuffs, it’s time for Labour to stop pretending they can play the Tories’ game and still win.

The rules need changing. And fast.

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