The big economic questions facing the Labour government in 2025
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The big issues facing policymakers around the world seem particularly portentous this new year. January is always a time for new beginnings and fresh thinking. But with Donald Trump heading for the White House and a new(ish) Labour government in charge of a faltering UK economy, the onset of 2025 seems especially portentous.
![[Heather Stewart]](https://i.guim.co.uk/img/uploads/2024/11/15/Heather_Stewart,_L.png?width=180&dpr=1&s=none&crop=none)
Forecasting is a mug’s game, as former Bank of England governor Mervyn King used to say about predicting exchange rates; but here are some of the big economic questions to ponder, as the new year gets under way:. Far from signalling recovery, the latest data showed UK GDP flatlining, with confidence weak, as businesses brace themselves for April’s £25bn increase in employer national insurance contributions (NICs).
![[ChatGPT logo on a smartphone next to a computer keyboard]](https://i.guim.co.uk/img/media/5fe4b4755f39979609e14abf6fccdd12b990d642/0_208_6240_3744/master/6240.jpg?width=445&dpr=1&s=none&crop=none)
Given that Labour had ruled out every other big revenue-raiser, it was one of the few places Rachel Reeves could turn to fund public services. But it has fuelled a furious backlash – and set up a narrative that Labour has clobbered the economy. The rise in NICs is far from the only factor at work. Economic growth was already forecast to slow, with interest rates at 4.75% and the Bank fretting about inflation.
![[Containers stacked up for export at a port]](https://i.guim.co.uk/img/media/7c0cf85b6ebdf45285fd994030ae1570326209b2/0_266_7973_4784/master/7973.jpg?width=445&dpr=1&s=none&crop=none)
How the next few months play out will be crucial in cementing Labour’s economic reputation. City forecasters aren’t expecting a slump – they predict growth of 1.3% in 2025. The Office for Budget Responsibility expects 2%, as Reeves’s higher public spending boosts demand. And strong real wage growth should give consumers some much-needed spending power. But recent data suggest the risks have tilted very much to the downside.
