Keir Starmer used his leaving speech to lay out a long list of Labour’s achievements in office – but his economic legacy appears mixed, with sluggish UK growth and higher employment costs.
The prime minister said his government had turned around an ailing economy, after 14 years of austerity. He said plans by the previous Tory administration to cut investment had been reversed and economic growth was the highest in the G7.
For Starmer and the chancellor, Rachel Reeves, it has certainly been a rough ride over the past two years, especially with Donald Trump in the White House. At times, it seemed Reeves couldn’t catch a break. But have Labour’s policies benefited everyone and can Starmer take credit for all of its much vaunted successes?
GDP has grown moderately under Starmer
When Labour was elected in July 2024, Starmer said economic growth was the “number one mission” of his government.
In early 2024, the economy was growing in response to Jeremy Hunt’s pre-election tax cutting spree. This ended abruptly when it became clear Reeves would need to raise taxes to stay within Tory budget rules she pledged to maintain. The speculation was a growth killer. Growth of 0.6% in the second quarter of that year fell to just 0.2% in the third quarter under Labour.
In early 2025, the economy picked up in response to threats by Trump to raise tariffs. Stockpiling raised GDP in the first half of the year, but it collapsed in the second half despite Reeves making growth her single mission. Again, speculation about Reeves needing to make spending cuts or borrow more hit business and consumer confidence.
A more digestible second budget in autumn 2025 – that lacked big tax rises – allowed businesses to rev up investment and consumers began spending again. Reeves was able to hail strong growth at the start of this year, with a 0.6% increase in GDP in the first quarter making the UK the fastest growing economy in the G7.
But then came Donald Trump’s strikes on Iran. The International Monetary Fund is forecasting UK growth will slow to 1% in 2026, from 1.4% last year.
Employer costs and Iran war pushed up inflation
In July 2024, the month that Labour came to power, annual inflation was very close to the 2% target at 2.2%. By the autumn however it had started to creep up, and peaked at 3.8% in the summer of 2025.
Higher water bills and a jump in vehicle excise duty were blamed, though an increase in employers’ national insurance contributions – a leading feature of Reeves’s first budget – was also cited by the Bank of England. The central bank said at the time that a third of companies increased prices to compensate for the increase in tax.
Before companies could digest the extra employment costs, Trump’s “liberation day” tariffs in April 2025 pushed up the cost of raw materials, making the situation worse.
The effects faded sooner than expected and, by late 2025, inflation was starting to come down again. Trump’s first strikes against Iran in late February, which triggered a rise in oil prices, reversed that trend.
The UK unemployment rate has risen
The jobless statistics shifted upwards during Labour’s first two years in government from 4.3% when it came to power to 4.9% in the three months to April. Companies have blamed the increase on the higher employment costs, principally the rise in national insurance, but also the prospect of enhanced workers’ rights. Some industries have said the uncertainty created by Trump’s on-off tariffs and growing global political instability was another factor.
Economists said artificial intelligence, which began to be introduced by many employers during this period, was a also a factor in discouraging companies from hiring new staff, especially younger recruits.
National debt has eased slightly
Reeves feared allowing government borrowing to exceed 100% of national income, which stands at about £3.1tn. Public sector net debt stood at 99.4% in 2024 and the latest figures show it was 95.1% in May.
Global economic uncertainty had raised fears among international lenders that governments were no longer a safe bet, and the UK’s vulnerability to restrictions on international trade flows meant it was one of the most likely to suffer the consequences of any global disputes.
The chancellor also set herself a target of reducing the annual spending deficit from more than 5% to below 2% to reassure financial markets that the UK had regained control of its budgeting. Recent extra spending has blown this project off course, putting pressure on the next prime minister and chancellor to make important judgments in response to calls for extra spending on defence, the NHS and welfare.
The Bank of England has cut interest rates
The government has cited the six cuts in interest rates by the Bank during its time in office as an important marker of success. Bank rate fell from 5.25% in the summer of 2024 to 3.75% in December 2025, where it has remained.
Mortgages became cheaper and businesses enjoyed lower interest rates, easing the financial pressure somewhat on households and businesses.
However, expectations in January that the Bank would continue to cut rates this year were cast aside after the conflict in the Middle East began to push up oil prices and inflation more widely.
Food parcel deliveries have fallen
Labour has made welfare benefits more generous, despite efforts by Starmer and Reeves to push through reforms to save money.
After a revolt by Labour backbenchers, Starmer ditched the two-child cap, which prevented larger families from claiming benefits for all their children.
Another U-turn followed a rebellion over plans to restrict eligibility to personal independent payments (Pip), increasing the welfare bill and lowering poverty levels. Children in low income families were among those to gain the most. Meanwhile, annual data showed the number of emergency food parcels delivered by the Trussell Trust charity fell in 2024 and 2025, when inflation was significantly lower than in 2022 and 2023, easing the pressure on some households.
