In a recent address, Prime Minister Keir Starmer highlighted Labour’s achievements during his tenure, but the overall economic legacy remains complicated. While he asserts that the party has revitalised an economy long burdened by austerity, the reality is more nuanced. Growth has been sluggish, and unemployment has risen, prompting questions about the effectiveness of Labour’s policies.
Economic Growth: A Stuttered Recovery
When Labour assumed power in July 2024, Starmer emphasised economic growth as his government’s foremost priority. Initially, the economy appeared to respond positively, buoyed by Jeremy Hunt’s pre-election tax cuts. However, this growth momentum faltered as Starmer’s Chancellor, Rachel Reeves, faced the necessity of tax increases to adhere to Conservative budgetary constraints. The GDP growth dropped from a promising 0.6% in the second quarter to a mere 0.2% in the third quarter of that year.
Despite a brief recovery in early 2025, driven by stockpiling in anticipation of potential tariffs, the economy faced renewed challenges as consumer and business confidence waned. Reeves aimed to stimulate growth with a more palatable budget later that year, which saw the economy rebound, marking the UK as the fastest-growing nation in the G7 with a 0.6% increase in GDP in the first quarter of 2026. Yet, the optimism was short-lived, as geopolitical tensions, particularly Trump’s military actions in Iran, led the International Monetary Fund to predict a slowdown in UK growth to 1% in 2026, down from 1.4% the previous year.
Rising Costs and Inflation Pressures
Upon Labour’s arrival in office, inflation was close to the Bank of England’s 2% target at 2.2%. However, by the autumn of 2024, inflation began to escalate, peaking at 3.8% in the summer of 2025. Contributing factors included rising water bills, increased vehicle excise duty, and the introduction of higher national insurance contributions. The Bank of England noted that many businesses responded to these tax hikes by raising prices, which further exacerbated inflationary pressures.
The situation was worsened by Trump’s tariffs on raw materials, which compounded the rising costs for companies. Fortunately, by late 2025, inflation began to decline, but the situation deteriorated again following the conflict in Iran, which sent oil prices soaring.
Unemployment on the Rise
As Labour’s first two years progressed, the unemployment rate climbed from 4.3% to 4.9% by April of the following year. Businesses attributed this rise largely to increased employment costs, particularly due to the national insurance hike, and the uncertainty surrounding enhanced workers’ rights. Furthermore, the global political climate, characterised by fluctuating tariffs and instability, raised concerns among employers.
Some analysts pointed to the growing adoption of artificial intelligence in workplaces as another factor deterring companies from hiring, particularly younger workers seeking entry-level positions. This trend complicates the labour market landscape and raises questions about the future of job growth under the current administration.
A Slight Easing of National Debt
Chancellor Reeves has been cautious about allowing government borrowing to exceed 100% of national income, which is approximately £3.1 trillion. Public sector net debt dropped from 99.4% when Labour took office to 95.1% by May 2026. However, heightened global economic uncertainty has raised concerns among international lenders regarding the UK’s financial stability, particularly as the country remains vulnerable to international trade disruptions.
Reeves has also set a goal to reduce the annual spending deficit from over 5% to below 2%, aiming to reassure financial markets of the UK’s fiscal control. However, recent increases in spending have jeopardised this target, placing pressure on future leaders to make tough decisions amidst calls for additional funding for critical sectors such as defence and healthcare.
Interest Rate Cuts and Their Impact
The government has pointed to six interest rate cuts by the Bank of England during Labour’s time in office as a significant achievement. The base rate decreased from 5.25% in the summer of 2024 to 3.75% by December 2025. This reduction has made mortgages more affordable and provided some relief to businesses facing financial strain.
However, the optimism surrounding continued rate cuts was quickly tempered by the escalation of conflict in the Middle East, which began to drive inflation up again. As a result, the Bank’s future monetary policy decisions will be closely watched.
Welfare Reforms and Their Consequences
Labour has implemented more generous welfare benefits, despite facing pressure from within the party. Starmer reversed the two-child cap on benefits, ensuring that larger families could claim support for all their children. This decision, along with increased eligibility for personal independent payments, has led to a higher welfare bill but has also contributed to a reduction in poverty levels.
As a result of these changes, the number of emergency food parcels distributed by the Trussell Trust charity fell during 2024 and 2025, reflecting an easing of financial pressures for some households. However, the long-term sustainability of these welfare policies remains a concern.
Why it Matters
As Keir Starmer reflects on his economic legacy, the mixed results of his government illuminate the complexities of managing a nation’s economy in turbulent times. While there have been moments of growth and progress in welfare support, rising unemployment, inflation, and geopolitical instability continue to pose significant challenges. The outcomes of Starmer’s policies will shape the economic landscape for the UK for years to come, influencing not only the Labour Party’s future but also the daily lives of millions of Britons.
