Today, we learn that the UK is facing the highest level of inflation of any major economy this year.
This follows last week’s news that food prices have been rising for five months in a row, at an annual rate of 5.1%.
Why are food prices rising?
The BBC writes that “Economists said food bills have been rising because supermarkets were passing on government increases in the minimum wage and National Insurance Contributions (NIC) to shoppers through higher prices.”
When the Government was elected last year, the message from the Prime Minister and Chancellor, in their own words, was that growing the economy was their “number one priority”.
But, as I – and many others – have repeatedly warned, you can’t tax your way to growth.
What does this mean for you?
Rachel Reeves previously promised she would not be "coming back with more borrowing or more taxes", but how likely is this?
As I’ve said recently, the Chancellor is running out of options.
If she’s sticking to her promises not to increase borrowing or raise taxes, and the economy is not growing, the remaining option is to cut spending.
Earlier this year, the Government attempted to pass legislation which would have reduced the welfare bill by £5bn. However, as you may recall, there was concern from across the House about the impact of the proposed changes. In the end, the Government U-turned and decided to remove the controversial proposals.
Why is this relevant now? It raises questions about the Government’s ability to pass measures which may be unpopular with some of its MPs, such as cutting public spending.
What happens next?
Suffice to say, the Government appears to have backed itself into a corner.
The economy isn’t growing, the Chancellor has made promises not to increase borrowing or raise taxes, and the Prime Minister may not be in a position to pass legislation on spending cuts.
All eyes are on Rachel Reeves and the next Budget, now set to take place on November 26th.
