Keir Starmer’s leadership has been marked by significant economic challenges over the past two years, as the UK grapples with sluggish growth and rising employment costs. While the Prime Minister proudly outlined Labour’s achievements during his recent departing speech, scrutiny of his administration’s performance reveals a more complex economic landscape. Despite claims of a turnaround from years of austerity, the metrics tell a nuanced story.
Economic Growth: Promises vs. Reality
When Starmer assumed office in July 2024, he declared that revitalising economic growth would be his government’s foremost objective. Initially, the economy appeared to respond positively, buoyed by tax cuts introduced by the then Chancellor Jeremy Hunt. However, this growth momentum was short-lived. By the third quarter of 2024, GDP growth had plummeted to a mere 0.2%, as speculation surrounding potential tax increases dampened both business and consumer confidence.
The dynamics shifted again in early 2025, with a temporary surge in GDP attributed to stockpiling in anticipation of increased tariffs from the United States. Yet, this was followed by another downturn as uncertainty regarding fiscal policy loomed large. The autumn budget of 2025, which included fewer tax hikes, temporarily revived investment and consumer spending, resulting in a reported GDP increase of 0.6% in early 2026, positioning the UK as the fastest-growing economy in the G7. However, ongoing geopolitical tensions, particularly due to conflicts involving the U.S. and Iran, have raised concerns about future growth trajectories. The International Monetary Fund now forecasts UK growth to slow to 1% in 2026, a drop from 1.4% the previous year.
Inflation and Employment: Rising Costs and Uncertain Futures
Inflation has also posed a considerable challenge during Starmer’s tenure. Upon Labour’s ascension to power in July 2024, inflation was close to the Bank of England’s target at 2.2%. However, by the summer of 2025, it had surged to 3.8%, driven by increased costs of utilities and a hike in vehicle excise duty. Notably, the rise in national insurance contributions implemented in Reeves’s inaugural budget also contributed to inflationary pressures, as businesses passed on these costs to consumers. The situation was exacerbated by U.S. tariffs on raw materials, which further inflated prices.
On the employment front, the unemployment rate has crept upwards from 4.3% to 4.9% within the span of two years. Companies have largely attributed this rise to increased employee expenses and the potential for heightened workers’ rights, compounded by the global political climate. The introduction of artificial intelligence technologies by various industries has also been noted as a deterrent to hiring, particularly affecting younger job seekers.
Fiscal Management: Balancing Act Amidst Global Pressures
Starmer’s government has navigated a complex fiscal landscape, with national debt slightly easing from 99.4% of national income in 2024 to 95.1% in May 2026. Yet, concerns about the consequences of global economic instability remain prevalent. The Chancellor has aimed to assure international lenders by pledging to reduce the annual spending deficit from over 5% to below 2%. However, recent expenditures have complicated this goal, creating pressure on future leadership to make pivotal decisions regarding spending on essential sectors like defence and healthcare.
The Bank of England’s decision to cut interest rates from 5.25% to 3.75% during Labour’s term has been touted as an economic success. Lower mortgage rates and reduced borrowing costs have alleviated some financial burdens for households and businesses alike. However, rising oil prices and inflation sparked by geopolitical tensions have prompted speculation that further rate cuts may be off the table for the foreseeable future.
Welfare Policies: A Shift Towards Generosity
Labour’s approach to welfare has also undergone significant changes. Despite initial resistance, Starmer abandoned plans that restricted benefits based on family size, responding to pushback from within his party. These policy reversals have resulted in an increased welfare bill, although they have also contributed to lower poverty levels, particularly among children in low-income families. Notably, the number of emergency food parcels distributed by the Trussell Trust charity declined in 2024 and 2025, reflecting a broader trend of easing financial pressures on some households as inflation stabilised.
Why it Matters
The intricate tapestry of Keir Starmer’s economic legacy underscores the challenges faced by any government in a volatile global environment. While Labour has made strides in certain areas, such as welfare reform and interest rate management, the overarching narrative is one of mixed results. The interplay of inflation, employment trends, and geopolitical factors continues to shape the economic landscape, leaving a critical question: Can Starmer’s government truly take credit for a comprehensive recovery, or will the realities of a complex economy overshadow its achievements? As the UK looks to the future, the implications of these economic policies will resonate deeply within both the domestic and international arenas, influencing the lives of millions.
