Inflation is the unseen robber that diminishes our savings and makes a mockery of our plans for the future. Reeves must explain what she plans to do about it before it gets out of control, says Eliot Wilson
When Lord Gove hinted in The Spectator last month at parallels between contemporary Britain and Weimar Germany, one of the dark terrors he naturally invoked was inflation. He conceded that we have not approached Weimar levels: at its worst in 1923, Germany’s hyperinflation was more than 40 per cent a day. We are not even in the territory of the cautionary tale of 1970s Britain, when it peaked at 27 per cent. But we should congratulate no-one for the fact we are not experiencing an inflationary crisis of historic proportions.
Inflation is an economic poison, and there is no room for complacency. The most recent analysis from the International Monetary Fund predicts that the United Kingdom will have the highest inflation rate in the G7, and Pierre-Olivier Gourinchas, the IMF’s chief economist, has sounded an admonitory note.
“One has to be very careful this increase in inflation, which we’ve seen in the past year, which we assess to be temporary, really turns out to be temporary.”
Unpicking the habitually periphrastic caution of economists everywhere, Gourinchas’s message is plain enough: keep an eye on inflation, and think carefully before you act.
He is right to fire a warning shot. In August, UK inflation was 3.8 per cent, mild enough, you might think. But the Bank of England’s target is two per cent, and its Monetary Policy Committee sets interest rates to fulfil a statutory duty of achieving that target, set by the government in 2019. Clearly, something is not working.
Conservatives were on target
Since the target was set by the previous government, it has generally seemed achievable: 1.7 per cent in 2019, one per cent in 2020, 2.5 per cent in 2021. The Covid-19 pandemic and the flood of more than £400bn which was pumped into the economy pushed inflation to 7.9 per cent in 2022 and 6.8 per cent in 2023, but in June 2024, the last full month of the Conservative government, it was exactly on target at two per cent.
Sir Keir Starmer and his beleaguered Chancellor of the Exchequer, Rachel Reeves, may not like this, but it is inescapable that inflation has all but doubled on their watch, and shows no signs of falling substantially or soon.
“Inflation” only rated two mentions in Labour’s 136-page manifesto at the last general election, though – appropriately? – this rose to three in Starmer’s Plan for Change unveiled in December last year. The government’s focus is clearly elsewhere, “growth” the word forever on ministerial lips if much less evident in economic output. But keeping inflation down is a vital precondition, because inflation is a pernicious, corrosive disease.
The doubling of inflation since Labour came to power is not happenstance. The government has awarded generous pay rises to public sector workers including doctors, nurses and other NHS staff, teachers and train drivers, which many believe will fuel inflation. The increase in National Insurance contributions on employers will inevitably, at least in part, be passed on to consumers, driving prices up further. Public borrowing has also risen sharply. These are inflationary pressures arising from policy choices the government has made.
Labour’s response seems to be simply to spend. The chancellor has trumpeted a rise in the minimum wage, caps on public transport fares, breakfast clubs for school pupils – all intended, in earnest, to make lives easier but all predicated on spending more taxpayers’ money. 2025/26 is expected to see total public expenditure climb to £1,347bn, the highest level in history even when adjusted for inflation.
Controlling inflation was Margaret Thatcher’s guiding principle. In a speech in Preston in 1974, before she even became Conservative leader, she railed against its destructive effects, “because it savages the vast majority of our population in their savings and plans”. Milton Friedman called it “taxation without legislation”, while Ronald Reagan, more colourfully, dubbed it “as violent as a mugger, as frightening as an armed robber and as deadly as a hitman”
Thatcher’s speech at the 1980 Conservative Party conference is famous for her declaration that “the lady’s not for turning”. But she said something else which should still resonate, calling inflation “the unseen robber of those who have saved”. Simply, inflation makes our money worth less than it was, through no fault or action of ours. It diminishes our savings and can make a mockery of our plans for the future. It is a malign disruptor.
Inflation harms consumers and savers. These are not small segments of society but millions upon millions of people – indeed, we are all consumers in one way or another. What is the government’s approach? The Chancellor declares she will keep inflation “as low as possible”, then flailingly cites “austerity, Brexit and the ongoing impact of Liz Truss’s mini-budget”.
It is not good enough. After 15 months in power – or at least in office – it’s time for Starmer and Reeves to take responsibility. Inflation is too high. Tell us how you plan to reduce it and keep it controlled. Everything else is just white noise.
Eliot Wilson is a writer