Consumer confidence is in freefall. Inflation is stuck at stubbornly high levels, postponing cuts to interest rates. The economy is already completely flat, and worst of all there are huge tax rises to come in a horror Budget next month.
Ever since the Government was elected in July, the outlook for the economy has grown darker. Rachel Reeves, the Chancellor, is trashing the economy at the worst possible moment.
We also learned on Friday that our debt-to-GDP ratio has gone through the psychologically significant 100pc level, and while that should be a moment for working out how to get the UK growing again, instead we are slumping into a permanent Italian-style stagnation where debt rises relentlessly, and it becomes impossible to ever recover.
Both Reeves and the Prime Minister, Sir Keir Starmer, were wildly exaggerating when they kept insisting that the Government they replaced had left behind “the worst economic inheritance” since the war. Even so, they appear to be intent on making the overblown rhetoric a reality.
An economy that was steadily recovering in the spring – indeed, the UK was briefly the fastest-growing member of the G7 – has slowed down sharply since Labour came to power.
Last week, we learned that GDP was completely flat last month, and it looks unlikely there will be any kind of an uptick when next month’s data is published. Earlier this week, we learned that inflation was stuck at 2.2pc, significantly higher than forecast, and well above the target rate, at a time when the rate of price rises is still falling in the United States and the eurozone.
As a result, the Bank of England quite rightly decided to keep interest rates on hold this month, and may well stick at 5pc for many more months to come. And then on Friday we learned that GfK’s Consumer Confidence Barometer fell sharply again last month, with people worried about the state of their personal finances.
With business confidence tumbling as well, there is little prospect of a return to growth any time soon. After all, without the optimism to spend and invest, it is impossible for any economy to expand.
Starmer and Reeves only have themselves to blame for that. They may have thought it was clever politics to talk down the economy: it gives them an excuse for tax rises that they had planned all along but didn’t want to admit were inevitable before the election.
The trouble is, the slump is coming at the worst possible time. Throughout August, the Government yet again had to borrow another £13.4bn to balance the books, £3.3bn more than the same month last year, and £2.5bn more than the Office for Budget Responsibility forecast as recently as March.
Punching through the triple-digit debt barrier is a terrifying symbol of how badly our economy is doing. Sure, it is less than the United States, now up to 122pc, and less than France, now at 112pc of GDP and still borrowing at twice the rate that we are. And yet it is a big mistake to be complacent about that, or take any false comfort from the fact that some of our rivals are even more extravagant than we are.
Debt on that scale is still a problem for three reasons.
First, it will have to be paid back one day. Sure, there will be plenty of Left-leaning economists who will argue that public debt doesn’t really count, and that anyway all the extra investment in an “industrial strategy” and “green technologies” will more than pay for itself in faster growth and higher tax revenues.
No one should be fooled by that kind of sophistry. Debt always has to be paid back one way or another, either in real revenues, or else by allowing inflation to accelerate to wipe it all out. It always costs eventually.
Next, it is already costing the Government billions in interest payments, with £113bn falling due this year, and with interest rates remaining stubbornly high, and the amount owed still rising, that total is going to get more and more punishing with every year that passes.
And finally, and perhaps most importantly, it crystallises an economy that has long since failed to generate enough growth to sustain a bloated state. The debt-to-GDP ratio has more than tripled since the start of this century, rising from what now seems a modest 28pc back in 2000.
All through that, we have been told that it was a one-off response to an emergency, that it would pay for itself in due course, and that it would allow public services to be fixed. None of that happened. Instead, the money has simply been wasted. Infrastructure has crumbled and public services declined.
In reality, debt of more than 100pc of GDP should be a wake-up call. We are peering into an Italian-style abyss of stagnant GDP and constantly rising debt levels, crushing the economy with high taxes and minimal levels of investment. Once a country has fallen into that trap, it is virtually impossible to escape.
We should be urgently working out both how to make the economy grow faster, and how to bring the state machine back under control – only by doing both can we bring the overall levels of debt back under manageable control.
Instead, Reeves and Starmer are trashing the economy at precisely the wrong moment, threatening to increase taxes and borrow yet more money. It is a toxic mix – and one that will condemn the UK to permanent stagnation.
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