Inflation, Stagnation and the Creation of Good Growth
Today, inflation rose to 3.5%, its highest level since February 2024. It is a timely reminder of the economic tightrope the UK is walking. For households already stretched by stagnant wages, today’s figures from the Office for National Statistics (ONS) confirm what many have been feeling for some time now: it’s getting harder to make ends meet.
Recent economic growth figures have been an uplifting sign- this will naturally bump up inflation. But today’s increase appears to be driven by sharp rises in household bills, food prices and vehicle duty.
This will be cause for concern for the Government Chancellor Rachel Reeves has said she will “go further and faster to put more money in people’s pockets.” That is the right instinct - but words alone are not enough. As we revealed in our report, Mind the Growth Gap, the cost-of-living crisis is the issue that weighs most heavily on voters' minds. As the crisis evolves, the response must move beyond short-term firefighting and toward a long-term plan for economic renewal.
At the Good Growth Foundation, we believe the solution doesn’t lie solely in interest rates or fiscal tweaks. What the UK needs is a structural strategy for economic growth that is regionally balanced and socially inclusive.
Inflation becomes particularly damaging when it collides with economic stagnation. The Bank of England may be correct in projecting a peak of 3.7% later this year, but without real wage growth, more secure jobs and rising productivity, even a return to the 2% target will not mean much for millions of struggling families.
That’s why inflation must be tackled not just through monetary levers, but by growing the real economy, in a way that benefits people’s lives. That means:
Investing in people by creating a skilled and healthy workforce that boosts productivity and purchasing power.
Repairing the safety net created by public services like the NHS.
Supporting regional economies so that opportunity is not isolated in a few postcodes.
Reforming the tax system to reward work, innovation and long-term investment.
Today’s figures strengthen the case for the Government’s growth agenda, but to tackle the problem, all parts of Government must be signed up to delivering on this mission. Households are vulnerable to price shocks because the cost-of-living is already too high. Building a more resilient economy by reducing the cost-of-living must be the long-term answer.
This moment is a stress test for the Government’s economic credibility. Voters will judge it not just on how it reacts to inflation in the headlines, but on whether it is serious about building an economy that delivers good growth - growth that is widely felt, deeply rooted, and resilient in the face of future shocks.
