Rachel Reeves was yesterday accused of ‘outright falsehood’ over her claims about Labour’s handling of the economy
The Chancellor was mauled by former Bank of England official Andrew Sentance over her response to figures showing inflation climbed to 2.6 per cent in November, an eight-month high amid increasing evidence that the party is derailing Britain’s recovery.
Elsewhere, a slump in UK manufacturing and the announcement of store closures by retailer Shoe Zone were both blamed on Ms Reeves’s Budget in October.
Ms Reeves claimed in response to the inflation figures that she had protected working people by not hiking ‘their national insurance’ – even though she staged a £25bn raid on national insurance contributions by employers.
But Mr Sentance, a former Bank of England rate-setter, said: ‘How can the Chancellor say this with a straight face? It is an outright falsehood.
‘Businesses and economic forecasters have made clear that higher employer NI means higher inflation and a bigger wage squeeze for working people.’
The row erupted ahead of a Bank meeting today [THURS] expected to see interest rates left on hold in a blow to millions of borrowers.
Mr Sentance said hopes of eventually cutting the Bank’s benchmark interest rate – currently at 4.75 per cent – below 4 per cent had been left ‘in tatters’ as inflation remains stubborn.
Rachel Reeves claimed she had protected working people by not hiking ‘their national insurance’
As recently as the start of this month, the Bank’s governor Andrew Bailey hinted that there were likely to be four interest rate cuts in 2025. Now, markets expect to see just two cuts by the Bank’s Monetary Policy Committee (MPC).
Sanjay Raja, chief UK economist at Deutsche Bank, said: ‘The MPC is some way away from declaring victory on inflation.’
Mr Raja said companies were ‘likely to start ramping up prices at the start of the year’ as they pass on the costs of the NI hike.
With recent figures also showing economic growth going backwards, some experts fear the spectre of ‘stagflation’ – where growth stagnates while at the same time prices spiral.
Julian Jessop, economics fellow the Institute of Economic Affairs, said that while it was unlikely to match the scale of previous bouts of stagflation in the 1970s, the latest data made Labour’s promises to kick start growth sound ‘even more hollow’.
‘The chances of a much worse outcome are increasing,’ Mr Jessop added.
Kallum Pickering, chief economist at broker Peel Hunt, said the Government must focus on getting Britain producing and selling more.
‘Until we fix the supply side of the economy through deregulation and by shrinking the bloated state, real incomes will grow more slowly than they could,’ Mr Pickering said.
Sir Keir Starmer yesterday told MPs at Prime Minister’s Questions that Labour had ‘stabilised the economy’.
But shadow business secretary Andrew Griffith said: ‘Labour has made the wrong choices. They are taking our economy in completely the wrong direction.’
Pointing to a slew of recent poor economic data, Mr Griffith told GB News: ‘If you were flying a plane and you had so many metrics in the red, you’d be looking for the parachutes.’
Official forecasts suggest Ms Reeves’s Budget will add half a percentage point to inflation.
Former Bank of England money-setter Andrew Sentance said the Chancellor’s comments were an ‘outright falsehood’
Shadow chancellor Mel Stride blamed Ms Reeves for making ‘irresponsible’ decisions.
The latest inflation figures, he said, meant ‘higher costs in the shops, less money in working people’s pockets and risks keeping mortgage rates higher for longer’.
Mr Stride added: ‘Working people cannot afford Labour.’
Further evidence came from the Confederation of British Industry (CBI), which published figures showing that output from the manufacturing sector fell in the three months to December at the fastest pace since the height of the pandemic in mid-2020.
CBI lead economist Ben Jones said: ‘Domestic business confidence has collapsed in the wake of the Budget, which has increased costs and led to widespread reports of project cancellations and falling orders. ‘
Meanwhile, retailer Shoe Zone said it had shut some stores after the Chancellor’s National Insurance tax raid as well as the increase in minimum wage made them ‘unviable’.
The retail and hospitality sectors are particularly vulnerable to the NI contribution changes as they disproportionately affect lower paid or part-time employees.
That is because as well as hiking the employer rate from 13.8 per cent to 15 per cent, the Chancellor cut the income threshold for paying it from £9,100 to £5,000.
Kate Nicholls, chief executive of trade body UK Hospitality, said: ‘We urgently need the Chancellor to rethink these changes to protect businesses and team members.’
Britain’s economy was growing at the fastest pace among all the G7 group of advanced nations in the first half of the year but has since seem growth slow to a crawl in the third quarter and go backwards in November.
Inflation had also appeared to be in retreat, sinking to 1.7 per cent in September – but has since risen twice in a row.