Britain has an inflation problem – and Rachel Reeves is to blame, says HUGO DUNCAN

There will be sighs of relief on Downing Street and at the Bank of England that inflation has held firm at 3.8 per cent.

But this is no cause for celebration.

Yes, inflation in September was lower than the 4 per cent feared.

But it remains the highest in the G7 – and almost double the 2 per cent target. 

The Chancellor has no one but herself to blame.

She wanted the fastest growing economy in the G7 but instead has the tightest squeeze on living standards.

Unemployment is at a four-year high and the bond markets are so concerned that UK government borrowing costs are among the most expensive in the developed world.

Inflation has jumped from 1.7 per cent since Rachel Reeves’ Budget last year

The bleak situation makes a mockery of the Chancellor’s claims to have ‘fixed the foundations’ and turned Britain into a ‘beacon of stability’ amid global turmoil.

Tell that to the families and businesses set to be swamped by yet another growth-sapping tax raid to plug the gap in the nation’s fragile finances.

Rachel Reeves has sought to blame everyone and anything for this mess – the Tories, austerity, Nigel Farage, Brexit, Donald Trump.

But while these are indeed uncertain times, the mess is of her own making.

The surge in inflation – from 1.7pc before her first Budget last October – was as predictable as it is painful.

As was the rise in unemployment, from 4.1 per cent when Labour came to power to 4.8 per cent now, the highest since early 2021.

Why? Because in that Budget, Ms Reeves unleashed her ruinous £25billion tax raid on business in the shape of higher national insurance contributions (NICs). A tax on jobs. A tax that penalised firms for simply employing people.

She was told it would cost jobs and push up prices. She did it anyway. Whacking up the minimum wage only made matters worse.

Marks & Spencer chief executive Stuart Machin this week described the national insurance hike as ‘catastrophic’ and blasted the ‘alphabet soup of taxes and regulations’ that has hit business in the past year.

No wonder.

The economy is flatlining, eking out growth of just 0.1 per cent in August after a decline of 0.1 per cent in July. The dole queues are lengthening.

Britain is now gripped by stagflation – a painful episode of low-to-no growth and sharply rising prices – hitting families in the pocket and delaying much-needed interest rate cuts by the Bank of England.

Ms Reeves likes to boast that rates have been cut five times since she took Office. But those rate cuts have little to do with her. And there may well have been more had she not stoked inflation just as it was being brought back under control.

George Brown, senior economist at Schroders, describes the latest figures as ‘a wake-up call’ and warns high inflation ‘is at risk of becoming entrenched in the UK’.

A rate cut before Christmas? Forget it, he says, adding rates are likely to be ‘on hold until the end of 2026 and we wouldn’t rule out [the] next rate move being upward’.

So the cost of the weekly shop is going up. But mortgage rates are not coming down.

And now the Chancellor is plotting another round of punishing tax hikes to plug a hole in the nation’s finances to fund the seemingly endless expansion of the already bloated state.

The economy is indeed in a hole. And Rachel Reeves is to blame.