Rachel Reeves was yesterday accused of leaving Britain ‘totally unprepared’ for the coming economic storm as figures showed inflation was stubbornly high even before the Iran war.
As surging oil and gas prices threaten a new cost of living squeeze, the Tories said the Chancellor’s ‘mismanagement’ had left the UK ‘weaker and more exposed’ heading into the crisis.
The Office for National Statistics (ONS) said inflation remained at 3 per cent in February, the highest in the G7 group of advanced economies and well above the Bank of England’s 2 per cent target.
That was before the launch of the US-Israel war on Iran, which has sent oil and gas prices surging and will result in a sharp increase in UK fuel and energy bills. Experts at Goldman Sachs fear the crisis could send UK inflation to as high as 5 per cent.
Yesterday, Larry Fink, boss of BlackRock – the world’s largest asset manager – said prolonged conflict in the Middle East could send oil to $150 a barrel resulting in a ‘stark and steep’ global recession.
Responding to yesterday’s ONS figures, Ms Reeves claimed that ‘in an uncertain world we have the right economic plan’.
Yet inflation is up from 2 per cent when Labour came to power, while unemployment has climbed to a five-year high, borrowing is at record levels outside of the pandemic, and growth at a standstill.
Meanwhile, firms say they are being battered by tax hikes, minimum wage increases, and botched business rates reform.
And private sector activity is expected to shrink over coming months, according to a new report from the Confederation of British Industry today, extending a run of gloomy sentiment going back to late 2024 just after Labour came to power.
CBI deputy chief economist Alpesh Paleja said already weak expectations were now being ‘compounded by the escalating conflict in the Middle East’.
He urged the government to ease pressure on firms caused by soaring energy bills and a new package of workers’ rights that Labour has brought in.
And as cost of living fears deepen, a poll from the British Retail Consortium today shows consumer confidence has ‘collapsed’ with expectations for economic growth as well as personal finances hitting the lowest on record.
Tory shadow Chancellor Sir Mel Stride said: ‘Britain is heading into this crisis weaker and more exposed because of Rachel Reeves’s choices.
‘Inflation up, unemployment spiralling, borrowing surging and billions thrown down the drain on debt interest payments.
‘Rachel Reeves’s economic mismanagement has left us weak and totally unprepared.’
Tory business spokesman Andrew Griffith said: ‘Today’s inflation figures show UK costs were already rising well before the missiles hit. Higher taxes and more employment red tape mean the UK was in poor shape to deal with further shocks.’
The inflation figures were described by economists as ‘the calm before the storm’ as it looks certain to climb as the impact of the Middle East war takes effect.
With oil prices hovering at around $100 a barrel, up from $72 before the war started, unleaded petrol is already 17p a litre higher at 149p and diesel up 33p to 176p, according to latest RAC figures.
Gas prices have also surged, meaning households face a typical annual bill increase of more than £300 from July, when the next energy price cap takes effect.
Before the conflict erupted, inflation looked all but certain to slide to 2 per cent this spring, enabling the Bank of England to continue cutting interest rates.
Now the outlook has changed sharply, with the Bank predicting inflation will climb to 3.5 per cent and markets betting that as a result, there will be multiple rate hikes this year.
The change in expectations means mortgage lenders have been withdrawing hundreds of their best deals, causing a painful crunch for new home buyers as well as current borrowers switching from cheaper fixed-term loans that are coming to an end.
