Britons are awaiting the final results of local elections across the U.K., with polls pointing to a backlash against the ruling Labour party as cost of living pressures have once again dominated political discourse.
Early council election results show Reform UK have made significant gains at the expense of Labour and the Conservatives, as the major polls had predicted.
The conflict in the Middle East has sent oil prices sharply higher and disrupted shipping routes, pushing up energy, transport and food costs.
For households, rising inflation means pressure on mortgages, rents and food bills. Businesses will face higher energy and transport costs, which could squeeze margins and make it harder to invest or hire.
“For businesses, the real shock is going to be uncertainty and also borrowing costs,” said Jack Meaning, UK chief economist at Barclays.
“Those are two things that are really going to drive firms’ investment decisions, because the uncertainty, both internationally and at home, means you’re a little bit more cautious about making long-term decisions.”
The pressures have forced a response from Westminster. Prime Minister Keir Starmer has outlined a five-point plan, which includes over £100 in energy bill cuts per household, extended fuel duty cuts until September, and £53 million for heating oil support.
“Energy bills make up a large amount of household budgets, especially for families on lower incomes, and many families are still struggling with the tail end of the last cost of living crisis, of which were centered around energy bills…so another jump in energy bills will be deeply unwelcome,” said Jonny Marshall, Principal Economist, Resolution Foundation.
For the Bank of England, that political pressure is a reminder of what’s at stake if inflation becomes entrenched.
“Persistent inflation is damaging for everybody. It’s damaging for all households. And so it is our job to get back to price stability, defined as a two percent target,” Andrew Bailey, Governor of the Bank of England told me in an interview last month.
This has changed the outlook for interest rates in the UK. Before the Iran war began, markets were pricing in the possibility of interest rate cuts this year. Those expectations have now been largely stripped out, with the Bank of England signaling it is prepared to raise rates, if needed.
“If we see this pass through – becoming embedded and becoming persistent – we will have to respond, because that’s our job and that’s how we get inflation back to target,” Bailey said.
And voters are paying attention.
Ipsos polling shows more than six in ten voters said the cost of living was the single biggest issue shaping their vote in these local elections, underlining how economic pressure is now driving political change.
— CNBC’s Cameron Marshall contributed reporting.
