The timing of today’s news that the UK inflation rate has risen to 2.3% is awkward for the Labour government, coming under a week after the Chancellor of the Exchequer detailed plans for economic growth.
Making her first Mansion House speech last week, Rachel Reeves unveiled a focus on financial services, fintech and payments as key growth drivers for the British economy. An extensive set of policies was outlined during the speech, aimed at fostering greater innovation in these sectors.
Today’s increase in inflation is unrelated to last week’s policy announcements, with the Office for National Statistics (ONS) citing higher annual gas and electricity bills as the primary reason for the rate rising from 1.7% in September to 2.3% in October.
However, it still doesn’t look great for Labour, with the inflation rate now 0.3% higher than the Bank of England’s ideal target of 2%, having dropped below this rate earlier in 2024 for the first time in years. The impact this could have on people’s personal finances could also offset any positive feeling the public may have following the interest rates cut earlier this month.
Alastair Douglas, CEO at TotallyMoney, a personal finance app, says: “Following today’s news, the expectation is that inflation could continue to rise into the New Year, which will add future pressure to household finances. And this is despite the cost of living slowing from its headline-grabbing peak of 11.1%, two years ago.
“While it’s hardly been a nightmare before Christmas, it’s not been a dream start for the new government. Since the Autumn Budget, we’ve heard that unemployment, mortgage rates, and repossessions are creeping up.
“We’re now waiting to be told that energy bills will increase again in January, while retailers are warning that tax hikes will further drive inflation and job losses.”
The UK’s present economic situation could prove a double edged sword for payments firms. On the one hand, economic uncertainty is hardly ever good for any stakeholders, payments and fintech included. On the other, as mentioned above, the government has put finance, fintech and payments at the heart of its plans for growth.
With other political-economic factors to consider – particularly the US presidential election with pro-crypto, pro-tarrif Donald Trump set to return to the White House – the pressure is now on Reeves and Keir Starmer, UK Prime Minister, to deliver on their economic promises.
Source: UK Parliament
“Could the news of tariffs on UK exports to the US be just that, following the global pandemic and cost of living crisis? Whatever the case, the Prime Minister and his cabinet need to show that what they’re doing is having a positive impact — and that there’s light at the end of this long, dark tunnel.”
So what exactly is Labour’s vision for finance and payments? Most significant for payments is the publication of the National Payments Vision (NPV), a long-awaited document which has received a warm reception from across the UK”s finance sector.
Open Banking is another major talking point, being the main focal topic of the NPV and having even featured in Labour’s 2024 election manifesto. The government has also launched legislation around Open Banking to parliament, the Digital Information and Smart Data Bill in September and the Data Use and Access Bill in October.
Meanwhile, the Financial Conduct Authority (FCA) has been tasked with taking the regulatory lead on Open Banking and on solving overlaps between itself and the Payments Systems Regulator (PSR) on fraud prevention. The government also envisions Big Tech firms as taking more responsibility in preventing fraud and reimbursing victims.
Labour hopes that its support for financial services, along with its recent budget which sought to fill a £40bn gap in UK public finances, will get Britain growing again. With economic growth slowing from 0.3% to 0.1% between Q2 and Q3 and inflation now on the rise again, its hopes are hinging on this heavily.
Chief Secretary to the Treasury, Darren Jones, said: “We know that families across Britain are still struggling with the cost of living. That is why the Budget last month focused on fixing the foundation of our economy so we can deliver change.
“That includes boosting the National Minimum Wage, freezing fuel duty and protecting working people’s payslips from higher taxes. But we know there is more to do. That is why the government is focused on economic growth and investment so we can make every part of the country better off.”
