Rachel Stagflation growth strategy

 We are in a period of high inflation and negative real growth. Unemployment is rising. Businesses are shutting up or scaling back. And the negative effects of Rachel's latest budget have not yet come into effect but are likely to inflationary.

Next week will be a bell weather moment. Tuesday is the release of unemployment data and Labour market statistics. Wednesday is the release of inflation data. Thursday is the release of business insights and economic activity and of course the Bank of England Monetary Policy committee meet on Thursday. There is widespread speculation that the Bank of England will cut interest rates by 0.25% on Thursday to stimulate the failing economy despite inflation being 3.6% in October - way above the 2% target.  In theory the Bank of England should be raising interest rates to curb inflation yet they are cutting interest rates to try and stimulate the economy.  They are more concerned about the stagflation that is setting in.

So far Rachel has managed to create the ideal conditions for Stagflation.  High inflation with no growth.

So what's in the inflation horizon?

January will see an uptick inflation as the energy price cap is raised. If we have a cold winter expect this to have a more significant impact. We have to wait until April until we benefit from Rachel's generous £150 per year reduction in taxes we pay on our energy bills.

The impact of this is likely to be wiped out by increases in fuel duty which will impact most businesses as it will directly impact  transport costs which few businesses are immune to. This will be inflationary.

April will also see many businesses hit by large increases in Business Rates and an inflation busting increase to minimum wages. This will be inflationary if businesses pass on the costs.

So where is the growth that Rachel promised?

GDP has fallen in 9 of the 16 months of a Labour government. Contrast that with Feeble Rishi. In the period Jan 24 - Jun 24 there was growth every month expect June 24 where there was election concern.

All the budget leaks and speculation caused Real gross domestic product (GDP) fell by 0.1% in October. September Real gross domestic product (GDP) grew by 0.1% so we saw a overall swing of 0.2% reduction in GDP.

So all the leaks, speculation etc had a real impact on the economy.  The GDP of the economy is circa £2.8 TRILLION so all these leaks cost the economy £5.6 BILLION.  That is huge. With a tax take of 37% of GDP that's a reduction in tax take of just over £2 BILLION.

"Loose lips sink ships economies."

Given the tax on jobs last November was expected to raise £25Bn in tax, it may well be that the sums no longer balance. If tax revenues are down £2 BILLION in November so let's  say £10 BILLION over the year and 180,000 people are now on job seeker allowance benefit of at least £4,700 per year - that's now £860 Million rise in benefits and a £10 BILLION loss in tax revenue.... 

Starmer was not available for comment so I interviewed StarmerBot

Me>  Where is the growth you have promised?

StarmerBot> I am proud of Labour's achievements.  We inherited a poor economic situation from the Tories and their disastrous 14 year rule.  Lizz Truss crashed the economy.  I have worked tirelessly to turn around Britain to make it a fairer country.  A country of opportunity. A country where people are respected.  Change starts here. Have no doubt  I have fixed the foundations and I have put Britain on a better economic footing. My radical plan will liberate Britain from decades of Tory misrule.  This is what you get with a Labour government. An upward trajectory for Britain.

Me> But the economy you inherited was growing strongly.  Inflation was low. Growth was up. We now have zero growth and high inflation?

StarmerBot>  We inherited a black hole from the Tories.  Right wing governments had crashed the economy. Lizz Truss had crashed the economy.  We had to fix the basics and are now on a stable footing. My solemn promise to you is I will work tirelessly to correct the errors of 14 year Tory rule and build a fairer Britain.

Me> So are you saying inflation will now fall and we will see growth

StarmerBot> We inherited a poor economic situation from the Tories and their disastrous 14 year rule.  Lizz Truss crashed the economy. We have fixed the basics and created a fairer Britain. Those with the broadest shoulders are now paying their fair share. Our sensible reforms on farm inheritance tax have fixed the basics and created solid foundations which  will stimulate the necessary growth and investment in farming.

Me> So elderly farmers are committing suicide to avoid the inheritance tax. Is that fair?

StarmerBot> Sensible tax reforms are required. A Labour run UK is about  fairness and it was unfair that farmers could bypass inheritance tax hence we introduced these sensible tax reforms.  A Labour government is about creating new opportunities. A Labour government is about change.  That's the difference that a Labour government makes.  Farming is a perfect example of Labour's passion for change -  I have created the opportunity for elderly farmers to commit suicide with the Assisted Dying Bill allowing new blood to reinvigorate farming.  New Labour - New opportunities - New thinking. With these sensible tax reforms farmers will be empowered to grow their businesses and not be saddled with the legacy inherited from  the previous generations of farmers - I have unlocked the shackles where they were  being held back by 14 years of Tory rules and mismanagement. I have liberated the farming community and they should be grateful for what I have done for them.

So I asked Google Translate StarmerBot's output.

> I'm scared of Angela, Andy Burham, Lammy...they all want my job.  The back benchers hate me. Help. I'm out of my depth.....

Disclaimer.  No AI was harmed in the creation of StarmerBot.  StarmerBot has not been trained on Starmer speeches, Labour manifesto  content  lies or other intellectually damaging content. We fully respect the rights of AI to not be permanently damaged by exposure to Labour ideas and concepts.

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Tuesday 16th Dec 2025

Well the first ONS release has happened this week.  No surprises - unemployment has risen as businesses batten down as the impact of current and future job's taxes hits businesses. 

UK unemployment rose to a four-year high of 5.1%. 38,000 people lost their job in November.

This is impacting welfare payments as the number of people claiming unemployment rose from 1.686 Million to 1.696 million (+13,000).

Sadly it looks like the young are the ones getting hit hardest - it seems a lot of the job loses are in the 18-24 age group.

Private sector pay increases are falling as the jobs market tightens. Pay growth was 3.9% in the three months to October compared with 4.2% in the three months to September whereas Public sector pay growth rose from 6.6% to 7.6% over the same period. Of course the overall pay package that public sector workers get eg pensions, holidays etc, is far more generous than the private sector.  The long term liabilities for public sector pensions just keeps getting bigger. Somewhere in the range of £2.9 - £5.8  TRILLION. Given the GDP of the country is £2.8 TRILLION, the UK is pretty much insolvent....

So Rachel has less tax revenue due to falling employment.  She has a higher welfare bill AND she has been dishing the cash with inflation busting pay rises for public sector workers.  Coupled with millionaires fleeing the country it does beg the question where the money to pay for all of this is going to come from.  More borrowing I suspect. Expect the bond markets to start getting nervous.

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Wednesday 17th Dec 2025

The surprise news today was that inflation fell to 3.2% down from 3.6% 12 months ago. So a relative drop of 0.4%/.

There are 2 inflation measures CPI and RPI.  RPI includes housing costs eg rent, mortgage and owner occupier housing costs. RPI is usually higher than CPI. The government cherry picks which metric to use so for example rail fares use RPI.

The ONS also publish a variant of the CPI which includes owner occupier housing costs (CPIH) and that fell to 3.5% from 3.8% 12 months ago. So a relative drop of 0.3%.

The good news is prices are rising slower than they would be. The bad news is prices are still rising and the costs for home owners are not falling as fast as for renters.

Inflation is well above the Bank of England's 2% target.  As the rate of inflation is falling it seems likely that the Bank of England will cut interest rates tomorrow. This is largely a political move.

The thing about these metrics is they are all relative.  Create a massive inflation busting hike in minimum wage in April 25 and there will be a spike in April/May.  Once that it bedded in in May/June 25, July will look better.  That's roughly what happened -  inflation peaked in June 25 and has been falling every since as the inflationary change has now been bedded in and the later numbers are relative.

The ONS bulletin claims that the drivers for the fall were "Food and non-alcoholic beverages, and alcohol and tobacco made the largest downward contributions to the monthly change in both CPIH and CPI annual rates".  Really?  Tobacco?  Prices are largely driven by taxation and not much else. It goes on to say "cakes, biscuits and breakfast cereals fell this year". This is a fall in absolute terms.  I haven't noticed breakfast cereals getting any cheaper. Maybe Marie Antoinette works for the ONS.  Let them eat cake.....

The 2024 price for cereal crops was £180-£190/tonne. The 2025 price for cereal crops was £170-180/tonne.  So in other words our hard pressed farmers have had a pay cut.

Equally looking at my outgoings, cakes and biscuits make up a minuscule percentage of my spend. Am I really 0.4% better off (relative) to last year?   Meat is about 25% more expensive. Energy seems more expensive.   Eating out is definitely more expensive.  Take-aways are more expensive.  I struggle to see how this good news is reflected in my numbers.  I'm sure I'm not alone in this.  Car fuel prices were £132.9 per litre in September but were more like £136.9 in November.  Go explain.....

So can Rachel take credit for this fall?  I suspect she will but her argument when it was rising (ie bad news) was that it was factors outside her control or those irksome Tories.  I suppose when it is "good news" she will claim her policies are working...

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 Thursday 18th Dec 2025

Several ONS reports have been released today. The Business Insights report was surprisingly positive with some businesses reporting growth in November compared to October and cost of supplies mostly static dispite inflation still rising.  The key take-away was that businesses were nervous and the risk of staff redundancies was up by 23% since October and the number of actual redundancies was up 3% in just 1 month !

The economic indicators report released today tells a slightly different story. Retail footfall was down 2% in November compared to October and down 3% year-on-year.  This translated into a 0.9% fall in turnover. The largest decrease in footfall was in Wales (5%).

 The number of new online job adverts decreased by 3% and had decreased 20% compared to November 2024.  The good news was job posts for Science, research, engineering and technology professionals increased between 12 - 18%.  The losers were:

Skilled agricultural and related trades down 43%

Teaching and educational professionals down 34%

Skilled construction and building trades down 30%

So it looks like there are definitely some economic challenges ahead.  

My money is on the Bank of England cutting interest rates today at lunchtime.

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 Thursday 18th Dec 2025

Well the Bank of England did cut the rate by 0.25% as expected.  The committee didn't all change their minds.  It was Andrew Bailey who changed is mind so the vote for was 5 to 4 compared to last month 4 to 5. So the committee still has concerns about inflation. 

This may be good news for our hard pressed businesses if banks pass the rate cut on. We shall wait and see.