New Year inflation warning piles pressure on Reeves and Starmer over price rises

Labour plans to double down on long-term reforms to bring down inflation in the face of warnings that the Budget will push up prices.

The rate of consumer price inflation has risen to 2.6 per cent and economists have warned that it is likely to increase further in the new year.

The effect of increasing national insurance contributions paid by employers, as announced at the Budget on 30 October, has not yet fed through the level of prices.

Inflation for the year to November stood at 2.6 per cent, higher than the 2.3 per cent recorded in the previous month.

The Office for National Statistics said the higher price in fuel and clothing helped push inflation higher. Core inflation, which removes food and energy prices, rose from 3.3 per cent in October to 3.5 per cent in November.

Paul Dales of Capital Economics told The i Paper that inflation would rise to 2.8 per cent in January, adding: “The 2.8 per cent doesn’t incorporate any influence from the rise in national insurance. I think that influence will come in over a longer time period.”

Samuel Miley of the Centre for Economics and Business Research warned that “the inflationary impact of policies announced at the Budget” would limit the scope for the Bank of England to cut interest rates in 2026, while Monica George Michail of the National Institute of Economic and Social Research also pointed to “inflationary pressures introduced in the latest Budget” as a danger for the Bank.

Rachel Reeves insisted that the UK’s inflation was not out of line with other major economies, saying: “The inflation numbers today show inflation at 2.6 per cent, that is comparable to other countries around the world, in the United States it’s 2.7 per cent – so slightly higher – in the euro area, it’s 2.3 per cent, so broadly in line with our international peers.

“I recognise that the cost of living crisis continues to bite. That’s why in the Budget, we increased the national living wage, a pay rise for three million workers, and it’s why we froze fuel duty so that motorists are not paying more at the pumps. So we recognise the challenges that families remain under, and are taking action to address that ongoing cost of living challenge.”

Labour MPs urged ministers to continue introducing reforms which will bring living costs in control over the longer term.

Yuan Yang, who sits on the Treasury select committee, said: “What this government can do, and I’m confident will do, is make our economy more resilient to the underlying drivers of inflation, through our plan to transform the UK into a clean energy superpower by 2030, weaning us off our dependence on imported oil and gas. This will insulate us from the energy price shocks that drive inflation.”

Jeevun Sandher, the MP for Loughborough, added that a rise to real incomes would come “by investing in income growth (e.g. building) and lower costs (e.g. insulation)”.

Sir Keir Starmer insisted it would not be necessary to impose further price rises on business in future. He told The Telegraph: “I do want to give reassurance here, because we did do the difficult stuff in this Budget. The case that business makes in particular that there should be stability in terms of the tax regime is a very sound case, in my view, and that’s what I want to deliver.

“And so that does give reassurance that a lot of the tough stuff is the stuff that we’ve done already in the Budget that was passed just a few months ago.”