High Prices, Fewer Jobs, No Growth — The UK Economy in 2025
The Government promised lower bills and a growing economy. Instead, families face stubbornly high prices, fewer jobs, and no sign of growth.
Inflation stuck at 3.8%
The Consumer Prices Index (CPI) rose by 3.8% in the year to August 2025, unchanged from July. That makes it the joint-highest rate since January 2024 — two months in a row with no progress.
Inflation here remains far higher than in Europe:
EU: 2.4%
France: 0.8%
Germany: 2.1%
Spain: 2.9%
This gap matters. Higher inflation makes UK businesses less competitive, puts upward pressure on interest rates, and leaves households poorer in real terms compared with our neighbours.
What’s driving it?
Food inflation rose again to 5.1%, the highest since January. Families are still paying more every week at the supermarket.
Housing and household services remain the single biggest driver of inflation. Within this, owner-occupiers’ housing costs are running at 5.3% — still painfully high even after months of easing.
Renters are hardest hit. The ONS Household Costs Index shows private renters facing 4.5% inflation, reflecting rising rents across the country.
“Families don’t feel relief — the cost-of-living crisis hasn’t gone away.”
Jobs market sliding
The labour market is flashing red. Payroll data show:
143,000 fewer jobs since Labour took office.
7 straight months of losses — a pattern, not a blip.
Employers are squeezed by higher National Insurance, making hiring more expensive.
Meanwhile, the broader economy is stagnating. July GDP showed 0.0% growth. I covered this in detail in last week’s Stat of the Nation: UK economy shows no growth in July.
This is the worst of both worlds: stagnant growth and falling jobs, while inflation refuses to fall back to target. Economists call it stagflation. For households, it just feels like being squeezed from every side.
The fiscal squeeze
The stubborn inflation rate means the Bank of England is unlikely to cut interest rates soon. That locks in higher mortgage bills and borrowing costs for households and businesses.
For the Chancellor, the situation is grim:
Inflation keeps debt interest costs high.
Growth is too weak to boost tax revenues.
Yet higher spending pressures — on welfare, pensions, and debt servicing — remain.
That leaves no fiscal headroom for giveaways in the next Budget. Instead, the risk is that there will be more tax rises to plug the gap.
The spiral
The UK is caught in a vicious circle:
Higher taxes mean families keep less of their income.
Higher prices erode what’s left in their pockets.
Less money to spend means weaker demand across the economy.
Lower growth feeds back into lower revenues and even tighter budgets.
This spiral is why the cost-of-living crisis isn’t easing, even as headline inflation has come down from its peak. Households feel poorer, and the economy feels stuck.
Conclusion
Inflation is not under control. Jobs are going backwards. Growth is stuck at zero.
That’s the reality of Starmer’s economic record so far:
High prices. Fewer jobs. No growth.
And a spiral that risks dragging Britain down further.
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