Cost of living crunch hurts UK PM Starmer in local elections
As Britons await the final results of local elections across the UK, cost-of-living pressures have once again dominated political discourse, with polls pointing to a backlash against the ruling Labor Party.
Early council election results show Reform UK making significant gains at the expense of Labor and the Conservatives, as major polls predicted.
Conflict in the Middle East has sent oil prices sharply higher and disrupted shipping routes, increasing the costs of energy, transportation and food.
For households, rising inflation means pressure on mortgages, rents and food bills. Businesses will face higher energy and transportation costs, which could squeeze margins and make it harder to invest or hire.
“The real shock to businesses will be uncertainty and also borrowing costs,” said Jack Meaning, chief UK economist at Barclays.
“Those are the two things that will really drive companies’ investment decisions because the uncertainty, both internationally and domestically, means you have to be a little bit more cautious when making long-term decisions.”
The pressure forced a response from Westminster. Prime Minister Keir Starmer has outlined a five-point plan that includes energy bill cuts of more than £100 per household, an extension of fuel duty cuts until September and £53 million for heating oil subsidies.
“Energy bills are a large part of household budgets, especially for low-income families, and many families are still struggling with the tail end of the last cost of living crisis that centered around energy bills… so another rise in energy bills will certainly not be welcomed,” said Jonny Marshall, Chief Economist at the Resolution Foundation.
For the Bank of England, this political pressure is a reminder of what is at stake if inflation stabilizes.
“Persistent inflation harms everyone. It harms all households. So it’s our duty to get back to price stability, defined as the two per cent target,” Bank of England Governor Andrew Bailey told me in an interview last month.
This changed the outlook for interest rates in the UK. Before the Iran war began, markets were pricing in the possibility of a rate cut this year. These expectations have now largely been eliminated, with the Bank of England signaling that it is ready to raise interest rates if necessary.
“If we see this going away, becoming entrenched and permanent, we will have to respond because that’s our job and that’s how we can get inflation back on target,” Bailey said.
Voters are paying attention, too.
The Ipsos poll has highlighted how economic pressure is now driving political change, with more than six in ten voters saying the cost of living is the biggest issue shaping their vote in these local elections.
— CNBC’s Cameron Marshall contributed reporting.
