Rachel Reeves slammed as UK economy on 'toxic' path to inflation chaos

Rachel Reeves has been accused of "filling the needle with poison" with Inflation forecasted to have surged to 4% in September, delivering a stinging blow to borrowers and evoking fears of 1970s-style stagflation. The prediction, from S&P Global, marks a sharp climb from August's 3.8% rate and doubles the Bank of England's (BoE) 2% target. Official figures are due on Wednesday, piling pressure on Chancellor Rachel Reeves just weeks before her Autumn Budget on November 26.

Analysts pin much of the blame on April's tax hikes, which have eroded household spending power and reignited price pressures amid stubborn core costs like energy and food. Omer Mehmet, managing director at Welling-based Trinity Finance, said: "Borrowers are the big losers here. If inflation creeps back up to 4%, this will show exactly how fragile the recovery really is.

The uptick dashes hopes for imminent BoE rate cuts, with the Monetary Policy Committee likely to hold the base rate at 5% when it meets next month.

Mr Mehmet warned: "For mortgage holders, it's another reminder that fiscal policy and monetary policy are now pulling in opposite directions, and ordinary families are caught in the middle."

Riz Malik, director at Southend-on-Sea-based R3 Wealth, sounded a dire alarm, likening the outlook to the economic malaise of half a century ago.

He said: "Welcome to 1970s style stagflation. Even with rising unemployment, high inflation will be the issue that stops deep rate cuts from the Bank of England's Monetary Policy Committee. It seems regardless of who inhabits Downing Street, this country's economic woes continue and prospects look as bleak as a mid-winter."

The figures appear to underscore a toxic brew: inflation at twice target levels, near-zero growth, and unemployment edging towards 4.5%.

Scott Gallacher, director at Leicester-based Rowley Turton, painted a grim portrait of "UK Plc in a shocking state-high inflation, no growth, and rising unemployment. It's a toxic mix that doesn't bode well for the future or our children."

Mr Gallacher, an employer himself, highlighted the jobs market's desperation. He warned: "My eldest has just finished his degree and, among his peers, many are carrying on to obtain Masters or PhDs, in part because of the poor jobs market, while others are struggling to find graduate positions.

"I see this as an employer, as for almost every role we advertise, we're inundated with applications, often from people with master's degrees-a clear sign of how weak the jobs market is. With inflation still high, a rate cut looks unlikely. Borrowers will continue to feel the squeeze, while savers may benefit a little longer. But the longer high rates persist, the more strain we'll see on households, small businesses, and growth."

Ms Reeves, who took office in July vowing "ironclad" fiscal discipline, faces accusations of self-sabotage.

Samuel Mather-Holgate, an independent financial adviser at Swindon-based Mather and Murray Financial, unleashed the venomous critique that inspired the headline: "If Rachel Reeves' goal was to kill off the UK economy she would have passed with flying colours.

"At a time when British business needs an injection of capital through tax cuts to stimulate the stagnation in the veins of UK companies, she's likely to fill the needle with a poison. More tax cuts will kill off the slight prospect of any growth and this is what we should expect from an incompetent chancellor."

Eamonn Prendergast, a chartered financial adviser at Bromley-based Palantir Financial Planning Ltd, echoed the sentiment, warning of a "high-tax, low-growth trap."

He said: "If inflation does rise to 4%, it reinforces the sense that UK plc is stuck in a high-tax, low-growth loop. The government's fiscal tightening and frozen thresholds have squeezed disposable income, while wage growth is losing momentum.

"That's not a recipe for sustainable confidence. Until inflation starts easing decisively, the Bank of England will struggle to justify cutting rates meaning higher borrowing costs will linger longer for households and businesses."

Not all views are bleak for savers. Antonia Medlicott, founder and MD at London-based Investing Insiders, urged prudence amid the turmoil, stressing: "If inflation hit 4% in September, then the Bank of England is more likely to delay previously anticipated cuts to avoid fuelling further inflation. A hold on the base rate probably means savers won't be suffering from any knock-on effects to the interest they're receiving-and that's no doubt a relief to those who were expecting cuts.

"But, high inflation still gives them a headache because it now means their money has to work even harder to keep up. Those keeping cash in accounts paying less than 4% need to face the fact their money is losing purchase power. And if that happens, it's time to shop around. Even in these circumstances, there are still good rates to be had. Be prepared to look at the digital banks though as that's often where you'll find the top offers and rates."

Anita Wright, a chartered financial planner at Ribble Wealth Management, offered a nuanced take on the policy bind. "Inflation-standing at twice the target-would not be alarming if it were paired with convincing, near-term growth. It is not.

"Labour has talked a good game on 'growth', yet recent measures are anti-growth, squeezing disposable incomes and, by extension, the 60% of GDP driven by consumer spending. If households feel poorer, they spend less; if they spend less, businesses invest less; and if investment slows, productivity stalls."

Ms Wright continued: "In principle, Bank of England should not cut rates while inflation remains sticky. In practice, with public balance sheets heavily indebted, a prolonged downturn risks doing more damage than a period of above-target inflation.

"The likely path is earlier-than-ideal rate cuts, tolerating negative real yields as a deliberate way to ease debt burdens-an old playbook last used to good effect after the Second World War. As for the health of 'UK Plc', resilience is not the same as dynamism. Policy must shift from revenue-raising to productivity-raising."

Speaking at the weekend, Ms Reeves blamed Brexit for Britain's sluggish economy, saying: "The UK's productivity challenge has been compounded by the way in which the UK left the European Union."