The British economy will expand 0.7pc during 2026, say OECD forecasters, just half the 1.4pc prediction the Office for Budget Responsibility posted as recently as November. And with lower growth comes sluggish tax revenues and higher benefit spending, further weakening Britain’s already fragile public finances.

Rachel Reeves continues to argue that everything in the UK’s economic garden is rosy – despite plenty of conflicting evidence. Consider just one aspect of the Chancellor’s ongoing cognitive dissonance – she argued earlier this month, in the annual Mais Lecture to City grandees, that Britain will “achieve the fastest AI adoption in the G7”.

Yes, artificial intelligence (AI) presents big opportunities for some, alongside job-crushing upheaval for others. But it is, overall, clearly a potential source of economic growth, productivity gains and broader wealth creation.

And yes, the UK is home to some serious tech talent which has attracted sizeable international investment – although I know plenty of eminently bankable AI whizz kids struggling to raise cash.

But does Reeves realise that AI relies on data centres. And the mass of computers packed in the data centres that drive AI generative systems demand huge amounts of energy. AI-related activities used 3.6 terawatt-hours (TWh) of electricity in 2020 and 8.3 TWh in 2024.

These demands are set to rise threefold by 2030, to 26 TWh on industry estimates. But if the sector expands 20-fold over the next five years, as per the government’s target, that implies 72 TWh of electricity demand going towards AI by 2030 – a quarter of the UK’s current total consumption.

National Grid bosses have long been warning our electricity system is “constrained”, with “bold action” needed to cope with “dramatically” growing demand. In the absence of a money-no-object investment programme and a mass culling of planning laws, our creaking electricity network hasn’t a chance of coping – and that’s before Ed Miliband’s madcap scheme to “decarbonise the grid by 2030”.

To explore these issues, I spoke to John McGee – founder and Managing Director of Durata. John has spent his career delivering complex infrastructure and engineering projects across energy, fabrication, specialising in electrical engineering.

Durata is a UK-based, globally operating specialist in critical power and modular data centre solutions. The company designs, fabricates and deploys rapid-installation infrastructure, including AI factories, offering full turnkey power distribution and in-house fabrication services.

Based in Middlesborough, in the North East of England, John leads Durata’s expansion in modular data centres across the UK, Europe and North America, supporting the rapid growth of AI, cloud computing and high-performance digital infrastructure globally.

His perspective combines hands-on engineering and supply chain experience with a strategic view of how industrial capability, infrastructure and energy policy must evolve to support the next phase of digital economic growth.

In this exclusive interview, John McGee compares the “easy, straight-forward” siting, installation and roll-out of Durata’s UK-made modular data centres in the US with the “far more complex” situation in the UK.

As of March 2026, roughly 140 proposed data centre schemes in the queue require around 50GW of electricity between them – exceeding Great Britain’s total current peak demand of 45GW. Capacity constraints mean that, despite Reeves’s rhetoric to City grandees, leading operators including Microsoft have been warned they may need to wait until the mid-2030s for full power connections. That’s why securing planning permission and power access for a data centre in the UK can currently take 5-7 years.

Desperate for a pro-growth narrative, Reeves insists the UK will “achieve the fastest AI adoption in the G7” – something that John McGee also wants to see. But he is profoundly sceptical.

“I really beg to differ regarding how the UK will be placed in the AI world,” he says. “We’ve got planning constraints and power constraints – in America, they don’t seem to have those issues like we do.

AI is currently driving one of the fastest infrastructure build-outs in modern history. Unlike traditional IT deployments, AI requires enormous computing power and specialised facilities capable of handling high-density compute loads and advanced cooling systems – and that means vast amounts of steady “base-load” electricity.

“I’m from Teesside, the North East – and I’m proud of our industrial heritage,” says McGee. “Teesside could be the global home of modular data centres – at the heart of this new industrial revolution – but unless some startling happens, we simply haven’t got the power generation capacity at the moment”.

John says small modular nuclear reactors (SMRs) could be part of the answer. “But the problem with SMRs is speed to market. As things stand, we are going to really struggle power-wise, unless something changes very quickly”

“I’m all for green energy,” McGee says. “But when we are trying to build an AI revolution, the clean energy timeframe is simply too aggressive …

“It’s all very well for politicians to jump on the latest buzzword – which is AI – but do they actually understand what it will take to be a global leader in this sector, not least when it comes to buildings and energy”.

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As conflict in the Middle East rages, the gyrating oil price is focussing minds not just on UK energy security, but also the negative implications of Britain’s uniquely zealous net-zero policies.

We’ve lately heard that the implications for the UK’s car-making industry are particularly significant – with Stellantis warning that it can’t meet strict UK government targets on sales of electric vehicles without losing money, making production in Britain “unsustainable”.

Stellantis is the world’s fourth-largest auto-making conglomerate, comprising European and US brands including Chrysler, Fiat and Peugeot, as well as Vauxhall. Back in December 2024, Vauxhall announced the closure of its Luton van-making factory, which employed 1,1000 people directly, and many more across local and national supply chains.

The news shocked Luton, once a major hub of the UK’s automotive industry. Vauxhall has operated in this Bedfordshire town for almost 120 years. But this was just the latest industrial closure driven in large part by the overzealous net zero policies of successive UK governments.

Back in the 1950s, the UK was the world’s second-largest car manufacturer - and a major exporter. By the early 1970s, Britain was producing almost 3 million cars a year.

Output has since fallen steadily, with the UK making less than a million cars a year since Covid lockdown. In 2025, little more than 700,000 cars were made in the UK – a 17 per cent drop over the previous two years to a 73-year low.

This drop has coincided with the introduction of the Zero Emission Vehicle or “ZEV mandate” – stiff rules that require electric vehicles (EVs) to now account for at least a third of sales, or manufacturers are heavily fined, rising to 80 percent of sales by 2030.

But the demand for EVs simply isn’t there in the UK – and British-based carmakers, shouldering sky-high energy bills, can’t compete with government-backed EVs made in China. Heavily subsidised Chinese models account for 76pc of all EVs made worldwide – with China’s share of the UK market now approaching 10pc and rising fast.

During the first week of March, Stellantis, which manufactures Vauxhalls, Citroens and Fiats in Britain, said production at its iconic Ellesmere Port factory in Cheshire will soon be “unsustainable” due to net-zero, ZEV mandate regulations. To discuss this, I got in touch with Tim Tozer, the former boss of Vauxhall UK - and a hugely experienced car industry executive.

Tim makes some pretty chilling predictions about the future of UK car-making – and a so-called “invasion” of Chinese-made EV – unless the government urgently changes its net-zero ZEV mandate rules.

The relentless pursuit of environmental goals is now seriously alienating millions of voters across the UK’s industrial heartlands. While everyone wants a cleaner planet for their kids, that transition must happen at a pace that is economically, technologically and politically realistic.

The UK’s net zero policies fulfil none of those criteria – which is why they are now being widely castigated.

Liam Halligan holds an "Ask Me Anything" discussion with some of his When The Facts Change subscribers on the UK Chancellor Rachel Reeves's Spring Statement, the economic outlook and the impact of conflict in the Middle East.

He shares insights on energy prices, government policies, and market reactions, responding to audience questions.

* “The Chancellor’s statement was astonishingly complacent.”

* “The escalation in the Middle East will last for months.”

* “Higher taxes are now slowing down growth.”

Chapters

00:00 Introduction to Substack Live Streaming

02:39 Economic Overview and Spring Statement Analysis

05:35 Impact of Middle East Turmoil on UK Economy

08:29 Government Borrowing and Inflation Concerns

11:43 Energy Costs and Their Broader Implications

14:31 Political Landscape and Economic Policy Challenges

17:25 Future Economic Projections and Growth Forecasts

20:42 Global Energy Dynamics and the Strait of Hormuz

23:37 Audience Questions and Insights on Economic Trends

36:25 Government Spending and Taxation Forecasts

40:15 Impacts of Tax Increases on Public Services

43:58 The Political Landscape and Economic Growth

49:03 Public Sentiment and Political Responsibility

52:26 Housing Market Challenges and Economic Factors

57:37 Energy Security and Policy Implications

01:01:30 The Legacy of Liz Truss and Economic Policy

01:05:15 Wealth Tax Discussions and Economic Consequences

Liam Halligan interviews Shadow Chancellor Mel Stride

Welcome to Episode 19 of When The Facts Change – Economics and Politics in a fast-moving world, with Liam Halligan.

UK Chancellor Rachel Reeves this week delivered her Spring Statement. Apart from “steady as she goes” platitudes and left-wing clap lines, she had little to say.

But what was astonishing is that Reeves seemed largely to ignore the economic and financial impact of turmoil in the Middle East. This US-Iran conflict isn’t a flash in the pan. With Israel involved, and other Gulf powers being drawn in, we’re in for military chaos – and thwarted energy supplies – for weeks, possibly months to come. That will seriously impact Britain – a hugely vulnerable net energy importer.

On Tuesday, Reeves said the OBR budget watchdog has cut the UK’s 2026 growth forecast from 1.4 to 1.1pc. But that downgrade doesn’t include the impact of the 15pc spike in global oil prices since US airstrikes last weekend and a doubling of the price of UK wholesale gas.

Reeves continues to claim - laughably – that the UK is a “beacon on stability”In reality, rising energy costs will push up inflation – with creditors then demanding higher returns to lend to a severely cash-strapped British government.

Already, the UK government is spending upward of £100 billion a year on debt interest, more than we spend on schools, double the defence budget – with Britain paying more to borrow than any G7 nation, more than Morocco and Greece.

But with energy and global supply chains under threat, the coming inflation spike is pushing up UK borrowing costs even more.

Since Monday, the rate at which the government borrows long-term money has already surged 25 basis points, with yet more borrowing needed to pay those higher interest bills.

And as long as Iran continues to block the Strait of Hormuz, that vital energy pinchpoint, blocking Saudi oil and Qatari LNG gas from global markets, energy prices will keep rising.

To discuss all this, Shadow Chancellor Rt Hon Mel Stride MP joins Liam Halligan in the When The Facts Change Studio – a no-holds barred discussion, with one of the UK’s top Conservative politicians, on When The Facts Change.

Key Topics

+ Impact of Middle East conflict on energy prices

+ UK fiscal policy and government spending

+ Vulnerability of UK sovereign debt market

+ Civil service efficiency and reform

Energy industry insider Francis Egan, someone with over 40 years of experience in the onshore and offshore oil and gas industry, says the "reckless", "disgraceful" and "ludicrous" policies of successive UK governments are "straggling the British economy" and "sacrificing hundreds of thousands of jobs on the altar of net zero".

Egan has worked as a engineer in the North Sea with both Marathon oil and BHP – and has vast experience across the global energy industry on both the production front-line and as a senior executive.

In this exclusive interview with leading economist and journalist Liam Halligan, Egan issues a no-holds barred warning that, as a result of over-regulation and high taxation, extremely expensive UK energy is resulting in lower energy usage and a dearth of domestic and international investment across multiple sectors, which in turn is causing economic stagnation and related fiscal and systemic weakness.

At the time of writing, the US and Iran are close to conflict. Brent crude is up 20pc over the last 10 weeks and global oil prices are at a seven-month high. Iran is one of the world’s top ten producers, often pumping over 4 million barrels per day, around 5pc of global production.But what of Britain’s North Sea oil production?

UK oil output is in long-term decline, but has in recent years gone into free fall. This has been at least partly driven by the "net zero" policies of successive Tory and Labour governments.

In the late 1990s, Britain produced 2.7 million barrels of oil per day – over 3 per cent of global production. By 2023, oil output had plunged to just 650,000 barrels, before falling sharply again in 2024 to 570,000 - a fifty year low.

In 2025, the Labour government banned the drilling of new North Sea wells. The oil and gas industry is now predicting a staggering 40pc drop this year in UK North Sea investment.

A big reason for Britain's steep energy output decline over recent years is tax. Tory then Labour "net zero” policies mean oil producers pay no less than 78% tax on their profits – with that Energy Profits Levy or EPL due to stay in place until 2030.

But plunging production means actually tax revenues are also dropping like a stone – and Britain’s oil and gas industry workforce, over 400,000 ten years ago, is now barely a quarter of that.

Since 2012, Egan has been CEO of Cuadrilla – a company exploring the extraction of shale gas in the UK, a production process also currently banned.

For over twenty years, Liam Halligan has written his multiple-award-winning weekly "Economics Agenda" column in the Telegraph https://www.telegraph.co.uk/authors/l...

For early access to all his writing and interviews, subscribe to Liam's "When The Facts Change" Substack: https://liamhalligan.substack.com/sub...

Follow Liam on X: @liamhalligan

Having reached a 40-year high of 11.1pc in the autumn of 2022, UK inflation has since been falling. On 18th February, we learned the Consumer Price Index rose 3pc during the year to January. That's lower than it's been, but still well above the Bank of England’s 2pc target.

Since Labour came into office, the Bank of England has cut its main policy rate – from 5.25pc in July 2024 to 3.75pc since last December, with the nine-member Monetary Policy Committee voting for six successive rate cuts.

Controversially, even though the Bank of England is supposed to be independent, the government has tried to claim credit for lower interest rates.

But the reality is that Labour’s high borrowing, high spending policies, along with sharp increases in employer taxes and the minimum wage, have actually helped drive up inflation – making it harder for the MPC to cut interest rates.And since the 2024 election, UK inflation, bang on the 2pc target when Labour took office, has been much higher than the eurozone average, and easily the highest among the G7 economies.

To discuss the future path of UK interest rates, as well as the state of our public finances and economic policymaking more generally, I thought it was time to talk with a serious heavyweight. So I asked Dr Andrew Sentance to join me on When The Facts Change.

One of Britain’s leading economists, Andrew served on the Bank of England’s Monetary Policy Committee from 2006 to 2011 – earning a reputation as a robust, independent thinker, who kept focussed on fighting inflation.UK inflation remains high - and our public finances remain fragile, with even the Institute for Fiscal Studies now arguing Britain needs to rethink its fiscal rules.

So stand by for a no-holds barred discussion with a genuine policy-making insider – albeit one with the freedom now to speak his own mind. Dr Andrew Sentance – on When The Facts Change.

Subscribe to When The Facts Change !!

This morning, I spoke to Mike Graham, formerly of Talk TV, now broadcasting on his new independent radio/YouTube channel. What was meant to be a short “breakfast show” chat turned into a 25-minute exchange about the impact of the UK’s current political pyrotechnics on financial markets – which you can view/listen to in full above.

The danger I related to Mike and his audience is that a full-scale Labour party blood-letting, leading to the replacement of Keir Starmer as Prime Minister, could spark a major financial crisis. And in the wake of this latest Peter Mandelson scandal, the odds on Keir Starmer being removed as Prime Minister at some stage during 2026 have been slashed.

“Peter being Peter”

Mandelson is the now thrice-disgraced former Cabinet Minister who was, until September 2025, Starmer’s British Ambassador to the United States. The latest release of emails from the US Department of Justice reveals in gory detail the extent of Mandelson’s relationship with the now deceased pedophile and financier Jeffrey Epstein.

Epstein was convicted in 2008 by a Florida state court, after pleading guilty to two counts of procuring a child for prostitution, resulting in a 13-month sentence. He was arrested again in 2019 on federal charges but died before trial.

The latest leaked emails suggest that in 2009, after Epstein’s conviction, Mandelson not only maintained a close friendship with Epstein but was sending the financier market-sensitive information produced at the highest level of government. Over the same period, Epstein was sending Mandelson and his then boyfriend (later husband) tens of thousands of pounds. During this period, Mandelson was serving in the Labour government led by Gordon Brown – who had put him in the House of Lords effectively as his Deputy Prime Minister.

It’s some scandal - and both Keir Starmer and Gordon Brown, to say nothing of the Labour party more generally, are now doing everything they can to distance themselves from Mandelson – a pivotal figure in the creation of the entire New Labour movement back in the 1990s, of course, which saw Labour win three successive elections.

Mandelson was removed as UK Ambassador to Washington last September after emails emerged which showed him supporting Epstein in 2008, while the latter was facing sex offence charges but before Epstein’s conviction. But the revelations in these latest emails, released earlier this week, are far more serious – so much so, that the police have now launched a criminal investigation into Mandelson’s conduct.

Before Starmer appointed Mandelson as US Ambassador in early 2025, and even before Brown brought him back into government in 2008, Mandelson had form. In 1998, he resigned as Secretary of State for Trade and Industry in Tony Blair’s government after failing to disclose a large interest-free loan from a ministerial colleague used to purchase a house.

And in January 2001, after Blair had brought him back into government as Northern Ireland Secretary, Mandelson was forced to resigned again –  following allegations he used his influence to assist with a UK passport application for a wealthy Indian businessman. Although a subsequent inquiry cleared him of wrongdoing, the political pressure made his position untenable.

For many years, Mandelson – well capable of entertaining and absorbing conversation, often laced with catty political gossip – has been a popular figure among Westminster journalists. Perhaps that is why his misdemeanours have so often been dismissed as “just Peter being Peter”. But now, with a police investigation under way, and possible criminal charges, there is simply no way back for Peter Mandelson – and his latest disgrace could well bring down the UK Prime Minister too.

Mandelson – the Starmer Harmer

At Prime Minister’s Questions on Wednesday, following forensic questioning by Conservative opposition leader Kemi Badenoch, Starmer admitted to Parliament for the first time that he was aware of Mandelson ongoing friendship with Epstein when he appointed him as US ambassador.

This revelation sparked fury across the Commons – not least among left-wing Labour MPs, who have long-viewed Mandelson as a hate figure and who view Starmer (and his chief Downing Street advisor Morgan McSweeney) as Labour modernisers who are too business-friendly and don’t stand for “traditional” Labour values.

Now, given the ability of the Prime Minister’s own backbenchers and other Labour activists to remove him, the weight of money in the political betting markets has concluded that the writing is on the wall for Starmer.

For weeks, speculation has swirled that one of Starmer’s many rivals might try to oust him as leader – whether it’s former Deputy Prime Minister Angela Rayner, Health Secretary Wes Streeting or Manchester Mayor Andy Burnham. That’s why, since the start of this year, Starmer has been “odds on” to depart from Number Ten in 2026.

But since PMQ’s on Wednesday, the chances of him stepping down as Prime Minister during 2026 have been slashed further from “2/1 on” to “3/1 on” - that is if you stake a pound on Starmer leaving in 2026, and that then happens, you’d win the grand sum of 33 pence.

Bond markets jumpy

The Bank of England’s Monetary Policy Committee held its main policy rate at 3.75pc when its latest decision was announced on Thursday lunchtime. The vote was close – 5-to-4 – which is one reason financial markets continue to price in two more rate cuts by the end of this year.

The MPC has cut rates from 5.25pc since the summer of 2024 and I personally think, with inflation still up at 3.4pc, way above the official 2pc target, there is no way the MPC should be even thinking about cutting rates.

Committee members should reflect on the fact, as former MPC member Andrew Sentance has said, that UK inflation has averaged 5pc since 2021 – the worst half-decade for some forty years. As measured by the annual growth of the consumer price index, inflation has been at or below its 2pc target in only three of the last fifty four months. That’s why, in my view, the MPC should ensure inflation is now properly knocked on the head, with no further rate cuts until the headline rate is sustainably back at 2pc.

Far more important than this widely-expected rate hold by the Bank of England is the barely-remarked-upon reaction of sovereign bond markets to the political chaos at the top of the UK government.

UK 30-year gilt yield, January/February 2026

Since the start of the year, as speculation about Starmer’s leadership has escalated, government long-term borrowing costs have increased - from 5.1pc in mid-January to 5.4pc now. That’s because investors are rightly concluding that if Starmer is forced out by his own party, those who replace him and Rachel Reeves are both likely to be far more “left-wing” than today’s Prime Minister and Chancellor.

The gap between two-year and 10-year gilt yields also recently hit its widest level since 2018 – with this “steepening” of the yield curve reflecting concerns that long-term fiscal discipline may well be abandoned by Labour’s replacements for Starmer and Reeves.

From the moment Labour took office in July 2024, the massed ranks of hard left Labour MPs on the government’s backbenches have demanded ever more government spending – not least on public sector pay and welfare spending. Similarly, any attempt by Downing Street to impose even modest spending controls – that is, a slow down in the rate of increase in spending under certain headings – has been utterly thwarted by Labour’s increasingly strident hard-left.

What if these people were actually running the government? That’s what is worrying the markets. And that’s why anyone reading this who didn’t vote Labour, and who wants to see Starmer out on his ear, should be careful what they wish for ….

Because under the leadership of Rayner or Burnham – and even the more moderate Wes Streeting, who will need to make a faustian pact with the hard-left if he is to grab the leadership – the most statist, fiscally irresponsible British government in half a century would soon do even more damaging to our beleaguered public finances.

When The Facts Change is a reader-supported publication. To receive new posts and support my work, and to watch my weekly When The Facts Change show, please become a paid subscriber.

Liam and Mike discuss the state of the UK economy, in the aftermath of Rachel Reeves second Budget Statement on 26th November, assessing the state of consumer and business confidence in the run up to Christmas.

* I wrote a tribute to my father on my Substack the day after he died and was most grateful – and moved – by the many messages of condolence I received from When The Facts Change subscribers. Thank you.

* I’ll be posting the next edition of my show, including interviews with some highly influential and interesting guests, on this platform tomorrow – Friday 12th December – then another show the following Friday.

In this post, I’d like to expand on a discussion I had with Jeremy Kyle on Talk Radio earlier this week – a recording of which is at the top of this post. Chancellor Rachel Reeves has lately been arguing that there is no link between Labour’s increase in employers’ national insurance contributions (NICs) and rising unemployment. This is nonsense.

The reality is that Reeves’s NIC rise, announced in her October 2024 budget and implemented in April, has seriously undermined firms’ incentives to hire. Combined with two inflation-busting increases in the minimum wage – a 6.7pc rise in April 2025 to £12.21 an hour, with another 4.1pc increase to £12.71 an hour now confirmed for April 2026 – the impact on hiring has been significant.

On top of that, countless business surveys point to employers’ deep concerns about Labour’s “back to the 1970s” Employment Rights Bill - currently in its final Parliamentary stages.

Ministers have thankfully retreated from insisting on the right of workers to claim for unfair dismissal and a host of other entitlements from day one of employment, removing today’s two-year probation period – which raised significant concerns that vexatious employees would try to take advantage of employers, particularly small and medium-sized enterprises (SMEs) which lack HR/legals departments.

But the probation period will still be slashed back significantly to just six months. One top of that, the Employment Rights Bill – substantially written by Labour’s trade union paymasters – significantly extends the power of trade unions under a range of headings.

“A number of the proposals [in this bill] are deeply worrying for employers,” says the British Chambers of Commerce. “They will increase employment costs, complexity and risk for firms, particularly SMEs who will be disproportionately affected. We are likely to see unintended consequences that could limit people’s employment opportunities and the UK’s economic growth.” 

Labour’s labour market

Earlier this week, the Chancellor faced questions from MPs about the effect of her policies on employers and workers, after polls showed she delivered one of the most unpopular budget statements of modern times.

Esther McVey, a former Tory Cabinet Minister, asked Reeves whether rising unemployment was linked to Labour’s £25 billion annual rise in employer NICs Official employment data does indeed show that job losses in Britain have disproportionately fallen on lower-income workers, while employers in the hospitality and retail sectors have said the employer NIC increase has made it harder to employ more staff.

Replying to McVey, Reeves said: “The number of jobs has increased by 329,000 this year. That is the record of this Government getting people back into work”. While this statement partly based on fact, it is also disingenuous - and is far from a true reflection of what is happening in the UK labour market.

In November 2025, the Office for National Statistics did indeed report that data up to September showed that the number of people in work in the UK had increased by a net 329,000 so far this year.

Yet Pay As You Earn (PAYE) payroll data shows a 126,713 decline in pay-rolled employees over the year to October 2025, with the number of such jobs falling every single month since Reeves announced her NIC-rise “tax on jobs” back in October 2024.

The graph below shows, in the context of a rising population, just how unusual it is for the number of people in pay-rolled employment – jobs offered by firms – to fall over a sustained period. The only time this has happened over the last decade and more was for a year or so from the Spring of 2020 – that is, during the Covid pandemic.

UK pay-rolled employment (PAYE data)

Total employment is rising – as Reeves said – but that’s only because of much faster general population growth, and because workers, many of them having lost their pay-rolled position, often resorting to “self-employment” to try to make ends meet.

The reality is that, as pay-rolled employment has consistently dropped since Labour took office, unemployment has risen pretty much every single month over the same period – as shown in the graph below – with the headline rate up from 4.1pc in July 2024 to a four-year post-pandemic high of 5pc this September.

UK headline rate of unemployment (% of workforce)

“OK Boomer”

The deterioration of the UK jobs markets is particularly marked among younger workers. The latest ONS data, covering the three months to September 2025 (Q3 2025), shows that youth unemployment – defined as those aged 16-24 who are economically active but without work – has risen sharply, reflecting this broader weakening of the labour market.

Some 702,000 young people were unemployed across the UK during Q3 2025, an increase of 47,000 from the previous quarter and 60,000 more than a year earlier, with youth unemployment now at a disastrous 15.5pc – also a post-Covid high.

This trend has been driven by falling vacancies (down 39 months in a row, a decline which pre-dated Labour’s time in office) and pay-rolled job reductions, particularly in sectors like retail and hospitality that employ many younger workers.

What’s more, youth unemployment has risen faster in the UK lately than anywhere else in the G7 – surging from under 11pc just three years ago to 15.5pc today. Graduate hiring is tumbling, while the retail industry is also shrinking, according to a new report from the accounting firm PWC, denying youngsters two long-established routes into the world of work.

Youth unemployment in other major economies ranges from 4.2pc in Japan to 20.7pc in Italy but these have rates have been dropping over the past three years. The UK figure, uniquely, has been rising – not least due to higher employer NIC contributions. And Reeves’s decision to lower to NIC payment threshold from £9,100 to £5,000 – driven by her desire to limit the “headline NIC rate rise” from 13.8pc to 15pc for presentational purposes, while still looking to raise very significant revenues –particularly undermined employment opportunities for low-income and part-time workers, not least students and young people.

“Until April 2025, you could employ someone for around twenty hours a week without paying national insurance but now, thanks to Labour NIC rise, it’s only around eight hours,” says Kate Nicholls, Chair of the UK Hospitality campaign group. “That is seriously curtailing entry-level employment opportunities for younger people”.

Job vacancies have also dropped sharply as employers look to take on fewer staff, while a health crisis has taken more young people in the UK out of the labour market altogether. Over 250,000 under-25s now say they are too ill to work or to seek work –with the share of young adults reporting common mental health conditions up from 19pc in 2019 to 26pc last year.

According to PWC, Britain’s overall employment rate for young adults is now 51pc, compared to 74pc in the Netherlands and 64pc in Australia. The PWC report also points to “early signs” that the rise of artificial intelligence (AI) could be affecting employment in some sectors – with “graduates at the sharp end”.

Youth unemployment in the UK is, outside the Covid pandemic, now at its highest for more than a decade. Around half of all the pay-rolled jobs that have gone since Labour came to power have been lost among those under the age of 25.

“A generation’s future is at risk – as is the UK’s productivity and prosperity,” says PWC. “Given the UK’s sliding performance on youth employment, a serious gear-change is needed.”

I’ll be exploring the state of the UK labour market more – with an emphasis on the retail and hospitality sectors – in my latest When The Facts Change show, to be released tomorrow (Friday 12th December)

When The Facts Change is a reader-supported publication. To receive new posts and support my work, consider becoming a paid subscriber.

GDP contracted by 0.1pc in September compared to the previous month, as I discuss with Jeremy Kyle on Talk in the clip above, despite a consensus that growth would be flat. The slowdown highlights the scale of the challenge facing the Labour government, as it seeks to encourage the economic growth that would help ease pressure on the UK’s public finances.

GDP growth for the third quarter overall slowed to 0.1pc, down from 0.3pc during the previous three months. Quarterly growth is now well down from 0.7pc during the first three months of 2025, according to data from the Office for National Statistics, and is the slowest since the end of 2023.

News of slower growth comes after figures released earlier this week showing that UK unemployment rose sharply to 5pc during the third quarter, up from 4.8pc during the previous three months – as outlined previously on When The Facts Change. Since Labour took office in July 2024, the jobless rate has risen significantly, from 4.2pc. This is in contrast to the US, Germany and France, where jobless totals have been more steady since last summer.

The latest GDP numbers were dragged down by a cyber attack resulting in a production shutdown at Jaguar Land Rover, with the ONS reporting a 28.6 per cent decline in the manufacture of motor vehicles and related products, taking UK car production to a 73-year low.

Business sentiment has also been hit by Rachel Reeves decision to increase employer national insurance contributions by £25 billion in her Budget Statement of October 2024. Since that announcement, and the actual introduction of those higher NICs in April, hiring has slowed significantly, with the UK shedding some 180,000 pay-rolled jobs.

Rising unemployment and renewed evidence of economic stagnation means traders are now slightly more convinced that the Bank of England will cut its main policy rate by another quarter-point when the Monetary Policy Committee (MPC) meets in December. The weight of money in the markets now points to an 80pc probability of such a rate-reduction, compared to around 60pc at the start of this week.

Since last summer, the MPC has lowered rates from 5.25pc to 4pc. Over the same period, the UK’s 30-year gilt yield, a measure of the long-term cost of government borrowing, has increased from around 4.6pc to 5.2pc. Over recent weeks, government borrowing costs have eased slightly, ahead of the Chancellor’s anticipated tax rises. But the broader trend of market borrowing costs rising as the Bank of England’s policy rate is coming down – a phenomenon When The Facts Change has long-described as “rate-splitting” – points to systemic pressures across financial markets.

Modest third-quarter growth of 0.1pc marked a significant slowdown from the 0.3pc expansion seen from April to June, and was weaker than the 0.2pc expected by markets. The figure was driven by increases of 0.2pc in services and 0.1pc in construction, offset by a 0.5pc drop across industrial production, as high energy costs, along with the JLR cyber-attack weighed on factory output.

But the GDP slowdown began earlier, with growth August – before the cyber-attack – revised down to zero from an initial estimate of 0.1pc.

“At my budget later this month, I will take the fair decisions to build a strong economy that helps us to continue to cut waiting lists, cut the national debt and cut the cost of living,” said Rachel Reeves. “There is more to do to build an economy that works for working people,” the Chancellor added.

In her October 2024 Budget Statement, Reeves raised taxes by £40 billion per annum and annual borrowing by £30 billion, raising the tax burden more than in any budget in more than 30 years. Faced with increasing evidence of a gaping hole in the public finances, and with Downing Street in crisis and left-wing Labour backbenchers determined to face down any meaningful spending controls, Reeves is now widely expected to raise taxes by a similar amount on Wednesday 26th November.

There is growing speculation the Chancellor will break a manifesto pledge by raising income tax from 20pc by another 1p or 2p in the pound. This would be the first increase in the UK’s income tax rate since 1975.

When The Facts Change is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.

I think there are three main reasons behind this rise, as I explain in the clip above –which I recorded earlier today on LBC with Tom Swarbrick.

The current 5.0pc unemployment rate is the highest since the first quarter of 2021, when it was 4.9%. Following the sharp post-pandemic drop, unemployment stabilised at historically low levels around 3.7–4.2pc from mid-2022 through to mid-2024, reflecting a robust jobs market recovery.

The steady rise since late 2024 has reversed much of that progress

UK Unemployment, September 2022 to September 2025

In my view, Labour’s policies explain a significantly share of this increase.

* Employer NIC Rise: In her October 2024 budget statement, Chancellor Rachel Reeves announced a a £25 billion annual rise in employer National Insurance Contributions (NICs), introduced in April this year. Since last autumn, this “tax on jobs”, according to countless surveys of business leaders, has contributed significantly to the loss of 180,000 pay-rolled positions.

* Labour’s Employment Rights Bill: This counterproductive legislation significantly extends employee rights and ramps-up trade union powers. Measures include granting rights to claim sick pay, maternity pay and unfair dismissal, from day one of employment, scrapping long-standing probation periods. Multiple employer surveys point to fears of rights abuse and vexatious lawsuits, reporting greater reluctance to take on more staff.

* Loss of business confidence: Business groups say that stagnant hiring reflects employers’ concerns they will soon face even higher taxes even as incoming legislation makes it riskier to take on workers. Responding to today’s unemployment figures, the British Chambers of Commerce said: “There is little comfort in this data for businesses or the government. Employers are being squeezed by sky-high employment costs, and we are beginning to see the consequences”.

When The Facts Change is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.

We then go on to discuss the fiscal fragility of the UK, France and Western Europe more broadly.

When The Facts Change is a reader-supported publication. To receive new posts and support my work, please become a paid subscriber.

I know Keith from my former life in the fund management industry – and was interested to see he has teamed up with two other economists and launched a highly-successful independent media platform.

During this discussion, Keith, Richard and Steve quiz me about the UK’s public finances, ask me why gilt yields have been spiking and what will be in Chancellor Rachel Reeves’ next budget statement, expected in October or November.

We also discuss UK politics more generally and the various parallels between UK and Canadian economics and politics.

The guys ask me as well about my memories of Mark Carney and Chrystia Freeland - Canada’s current Prime Minister and Minister of Transport/Trade. I was at university with both Mark and Chrystia and also worked alongside Chrystia in Moscow and London when I was a journalist at The Economist and then The Financial Times.

I want to thank Keith, Steve and Richard for inviting me on their podcast - and I should reassure UK readers that the name of their “Loonie Hour” podcast derives from the term used in foreign exchange markets to refer to USDCAD cross-rate – that is, the exchange rate between the Canadian dollar and the US dollar.

The podcast name has nothing to do with their mental faculties (they are NOT lunatics but are, in fact, very smart folks!) The nickname for the USDCAD currency pair itself is derived from Canada's $1 coin – which has long featured a picture of a common loon (a bird).

But I need to post more regularly on Substack – and will do so. I will also soon be adding more audio/visual content, not least as I’m building a small studio in my home. Please bear with me as I get “When The Facts Change” properly up and running.

The clip above shows my contribution to a discussion earlier this week on GB News – the bulk of which relates to the subject of this post, namely the latest UK government borrowing numbers, which are actually rather shocking.

I’d recommend that you watch the clip – and if you want more detail on the arguments that I make in the GB News studio, then do please read on.

Fantasy Economics

Inside the UK’s Labour government, there’s a fierce behind-the-scenes battle going on over Rachel Reeves’s next Budget, scheduled for late-October/early November. But the heated discussions within government are shockingly detached from economic reality.

There’s practically no recognition among cabinet ministers, and certainly not Labour’s backbench MPs, that the British state is, quite literally, teetering on the edge of bankruptcy.

There’s little acknowledgement that the sharp tax rises announced in Reeves’s last Budget in October 2024 have stalled the economy – GDP has been contracting, shrinking in both April and May – or that rising tax rates are now leading to falls in total tax revenues.

And there’s certainly no appetite at all within the Labour party for the controls on spending needed to avert a major fiscal crisis – as recent government U-turns on welfare reform have shown.

Labour’s £40bn of tax rises last year took the UK’s tax burden to its highest level since the early 1960s. But during the twelve months to this April, the fiscal year 2024/25, government borrowing still surged to £148bn instead of the £87bn originally forecast by the Office for Budget Responsibility (OBR).

And this week we learned that the government borrowed no less than £20.7bn in June alone, some £6.6bn more than the same month last year. This is the second-highest June borrowing figure on record, outstripped only in June 2020 at the height of the Covid lockdown, when the entire economy was shuttered and the state was spending mightily on furlough and other support measures.

The stark reality is that the UK government is now borrowing not so much to spend more on the NHS or other public services, but largely to pay the interest on its ballooning national debt – as this post will demonstrate. Meanwhile, the economic growth that would deliver more tax revenues and stabilise our public finances is now being crushed, as companies and households grapple with higher tax rates and hunker down, curtailing spending and investment, ahead of widely-expected further tax rises in Reeves’s upcoming Autumn Budget.

UK politicians continue to operate in a world of fantasy economics, as does almost our entire media class, demanding ever higher spending, ignoring the soaring national debt and spiralling debt-interest payments and refusing the most modest spending controls. Witness the government’s inability to even moderately rein-in the forecasted surge in benefit spending over the lifetime of this Parliament.

Meanwhile, the Treasury/No.10, having ruled out tax hikes for “working people”, is now floating further taxes on businesses and savings that risk entrenching economic stagnation – and undermine our public finances even more.

The UK government is now borrowing not so much to spend more on the NHS or other public services but largely to pay the interest on ballooning national debt

It is absolutely the case that, after years of political and managerial drift, the Conservatives left Labour a difficult fiscal inheritance – with taxation already sky-high and national debt at around 95pc of GDP. Whenever I write or speak publicly about the UK’s public finances, I acknowledge that reality – as I did in the clip above.

But the fiscal dangers Britain faces have been very significantly heightened by Labour’s policies since the party came to power in July 2024, as spending, borrowing and tax rates have been pushed up even more – and the warnings I’ve been issuing for many months, about rising government borrowing costs and spiralling debt-interest payments are now being echoed from quarters that are difficult to ignore.

Last week, for instance, the OBR itself issued an unprecedented, damning assessment of how badly public spending is out of control, remarking that the UK’s fiscal position is “vulnerable” and “facing mounting risks”, the challenges “daunting”.

And Paul Johnson, bowing out as director of the Institute for Fiscal Studies, is now lambasting MPs of all parties for “living in a dream world”. Johnson said he was “in tears” at the “fantastical economic beliefs that seem to be assailing ever more people among our political class and beyond.” There is, he wrote, “not a hint of seriousness to be found” ahead of the forthcoming Budget.

That is indeed the reality – there are very few in our political and media class willing to confront reality and get beyond “fantasy economics”.

Displacement Activity

In April 2024, the OBR forecast the government would borrow £87bn over the subsequent twelve months. When that financial year ended in April 2025, the figure was £148bn, as mentioned above, an astonishing 70pc more. Endless political and media discussions about whether ‘fiscal headroom’ is £5bn or £10bn in five years’ time – the definition of Reeves’s ‘fiscal rules’ – are utter displacement activity. We can’t even get within £60bn of our borrowing estimate within the current financial year.

The graph below highlights just how dramatically official OBR forecasts of government borrowing in 2024/25 escalated as the year progressed – a reality ignored as politicians and the media continue to play parlour games over the prospect of “£10bn of headroom” in 2029/30, the scheduled end of the current Parliament. This is fantasy economics in action.

The UK government spent no less than £105bn on debt interest during the last fiscal year – almost twice the annual defence budget, far more than we spend on schools. So no less than 70pc of what the government borrowed in 2024/25 (£105bn out of £148bn) was spent not on public services or benefits for the needy, but on servicing our ever-growing pile of national debt.

And we learned earlier this week that of the £20.7bn borrowed during June, a staggering £16.4bn of that borrowed money, over 80pc, went on debt interest. The UK’s public finances now resemble a “Ponzi scheme”.

When four-fifths of the money you’re borrowing is being used to pay the interest on your existing and ever-growing pile of debt – using a new credit card to pay merely the interest bill on all your other credit cards, not tackle the debt itself – then you are obviously in serious financial distress.

Over 80pc of government borrowing in June was spent on debt interest

A major and almost entirely unacknowledged reason why our debt interest bill is spiralling out of control is because Britain has by far the highest share among advanced economies of “index-linked” government debt – with interest payments that rise with inflation. Some 30pc of our outstanding state debt is tied to inflation, compared to just 5pc in the US, Germany and France and 12pc in Italy (the G7’s second highest). And the recent sharp rise in UK inflation is ratcheting up government debt interest payments even more.

Much of the commentariat thinks that, if Reeves repeats what she did in last October’s Budget, sharply increasing tax rates this autumn too, she can plug the gap, reduce borrowing and avoid a sovereign bond market melt-down. That is NOT the case.

Because Reeves’s tax rises so far, not least her massive £25bn annual hike in employers’ national insurance contributions (NICs), have crushed hiring and investment, along with broader economic growth, weakening tax revenues and further undermining our public finances.

Stung by recent massive forecasting errors during 2024/25, the OBR – full of public-sector economists who are broadly sympathetic to Labour – is now starting to issue stark warnings about the limits of UK taxation.

Reeves’s higher tax rates have been hammering economic activity, undermining growth and weakening our public finances even more

“The ratio of tax to GDP is now at levels we haven’t seen since the Second World War…the scope to simply just raise more and more tax revenue is definitely limited”, said David Miles earlier this month. Miles is extremely senior, one of only three members of the OBR’s Budget Responsibility Committee. “With any further hikes creating so many disincentives around saving, investing and working”, Miles continued, looking for tax increases “wherever you could find them” will cause “serious damage to the growth potential of the economy”.

And when the economy is stalled by high tax rates, as it now is, government benefit spending is higher and tax revenues are much lower, making the gap in the budget even wider…

Long Hot Summer

The UK’s consumer price index (CPI) was 3.6pc higher in June than the same month in 2024 – well above expectations and significantly higher than the Bank of England’s 2pc inflation target. The broader retail price index (RPI) rose even more, by 4.4pc. Unemployment is also up, hitting 4.7pc during the three months to May, a four-year high. And, as I mentioned above, GDP contracted in both April and May, by 0.3pc and 0.1pc respectively.

It’s now screamingly obvious Labour’s “pump priming” of the economy, trying to generate growth by upping state borrowing and spending, isn’t working. Worse than that, the government’s crude Keynesianism is now pushing Britain towards a budgetary crisis every bit as serious as during 1976, when the UK was bailed-out by the International Monetary Fund – a catastrophe that seems to have been aired-brushed out of our political and media consciousness.

Reeves’s higher tax rates have been hammering economic activity, causing tax revenues to fall. Yet Labour’s leadership, driven by ideological fervour and fearing the party’s increasingly strident far left, keeps pushing spending up regardless.

It’s now screamingly obvious Labour’s “pump priming” of the economy, trying to generate growth by upping state borrowing and spending, isn’t working

The sharp rise in the rate of NICs, for instance, has caused hiring to plunge since it was announced in last October’s budget, undermining NIC revenues overall. Labour’s higher capital gains tax rates, introduced in October, mean investors aren’t selling assets, causing CGT revenues to plunge. Higher stamp duty is caused the housing market to seize up – there were just 81,000 transactions of residential properties in May, a huge decrease from 177,000 in March, as the impact of stamp duty changes kicked in.

A more punitive non-domicile tax regime and much higher inheritance tax on businesses has also sparked an exodus of wealthy individuals, with countless UK entrepreneurs moving abroad. The top 1pc of earners generate almost 30pc of all income tax receipts, with the top 5pc paying around half. But when you push the seriously rich overseas with a student-politics tax regime, they will often stop investing and close their UK-based businesses too. So the revenue loss goes way beyond income tax, spreading across the gamut of employment and corporate taxes.

As a former asset manager, I talk to senior people at the global pension funds, insurance companies and other institutional investors that lend governments serious money. So when I say that the financiers upon whom the UK depends to lend money to our government are not only deeply unimpressed but seriously alarmed and increasingly nervous about this Labour government’s actions, that’s direct from the horse’s mouth.

It’s anyway clear investors are demanding ever higher returns to bankroll this increasingly spendthrift government. The interest rates our government pays to borrow are now at their highest level since 1998, but on a far greater volume of debt – approaching 100pc of GDP, rather than 35pc of GDP back in the late 1990s.

The UK’s benchmark 30-year gilt yield has lately breached 5.5pc – having been way above 5pc for the whole of this year. Borrowing costs have for many months now been consistently much higher than the 4.85pc peak they momentarily touched during Liz Truss’s “mini-budget” crisis in October 2022. Yet the media’s reaction, hysterical back then, is now for the most part ridiculously complacent.

Last August, just after Labour took office, the 30-year yield was below 4.5pc. Since then, increasingly sceptical investors have pushed it a full percentage point higher. During this same period, the Bank of England has cut its benchmark borrowing cost from 5.25pc to 4.25pc, a percentage point in the opposite direction. “Market rates” and “policy rates” moving against each other are a clear sign of brewing systemic danger. The warning signals are flashing red, yet no-one in a government addicted to spending wants to acknowledge what’s going on.

When The Facts Change is a reader-supported publication. To receive new posts and support my work, please become a paid subscriber.

Outlier Nation

“Borrowing costs are going up around the world”, bleat fresh-faced government spin doctors. Rachel Reeves herself made the same argument, when appearing earlier this week before the House of Lords Economic Affairs Committee.

While that’s true, UK gilt yields and total debt service payments are now easily the highest in the G7. As of the time of writing, the UK 30-year sovereign yield is 5.46pc, significantly higher than the US (4.94pc), France (4.17pc) and Germany (3.21pc). Even the governments of previous “debt-crisis” nations can now borrow a lot more cheaply than the UK – namely Italy (4.46pc), Greece (4.25pc) and Spain (4.12).

What really worries serious bond traders is the UK’s stark outlier status when it comes to the share of “index-linked” state debt, as mentioned above. Not only is almost a third of our outstanding sovereign debt tied to inflation, five- to six-times more than almost all comparable nations, it is linked to inflation as measured by the RPI (which rose 4.4pc last month, far more than the headline CPI number).

Reeves continues to claim that the government has no issues getting global investors to lend it money. Yet even though the gilt yields we are paying are already comparable high, the true price we are paying to service our debt is actually far higher, given that in a bid to keep headline borrowing down, we have been offering lenders a taxpayer-backed inflation hedge by issuing “linker” bonds to a far, greater extent than any other major economy.

What really worries serious bond traders is the UK’s share of “index-linked” state debt - which is five-to-six times higher than comparable nations

Again, approaching a third of the UK government’s outstanding government debt is now RPI-index-linked, compared to around 5pc in the US and Germany and 10-12pc in France and Italy. This surge in index-linked debt issuance reflects, in part, an attempt by the authorities to assuage long-standing concerns among bond investors about the UK’s vast government off-balance-sheet liabilities. Yet our headline gilt yields are anyway still the highest in the G7, despite so much of our debt being index-linked.

The UKs’ off-balance sheet public sector liabilities include debt accrued under the Bank of England’s alarmingly opaque “asset purchase facility” (APF), the disastrous “private finance initiative” (PFI) but, above all, the on-going trillion-pound-plus bill for still insanely generous pensions for state employees.

These gargantuan statistical wheezes means the UK government’s actual liabilities are way higher than the headline national debt figure – around 160pc of GDP if you use very conservative estimates of the cost of public sector pensions, as I have in the graph above. Such stark realities, again, are entirely absent from practically any public discussion of Britain’s public finances. But serious financial analysts, and the bond investors they advise, are all to aware of the genuine position of the UK’s national balance sheet.

As well as the UK’s “outlier” status when it comes to index-linked debt, much of the private money invested in UK gilts is “levered” – or also borrowed. And when the backers of the government’s backers get worried, as I know they now are, they will eventually “margin call” creditors, igniting a sudden and self-reinforcing sell-off that sends yields and economy-wide borrowing costs into orbit.

Looming in the background, then, as politician and journalists indulge in meaningless “faux-clever” discussions about whether “fiscal headroom” is £5bn or £10bn in 2029/30, is the spectre of 1976. Back then – again under a big-spending Labour government, in hoc to public sector unions and belligerent backbenchers, which kept pushing tax rates up – the UK ended up going “cap-in- hand” to the International Monetary Fund for a bail-out, an episode which sparked a plunging currency, sky-high inflation, and years of economic and political chaos.

Britain is now hovering close to the cliff-edge of a similar fully-blown sovereign-debt crisis. Back in 2008, in the aftermath of worst financial collapse since the late 1920s, HM The Queen asked, “why no-one saw this coming?”. The same can’t be said this time around – lots of serious people, not least highly-influential investors, are now seriously concerned that the UK’s public finances are on the brink of systemic collapse.

Yet almost our entire political and media class – not least our Labour government – remains determined to ignore this reality.

When The Facts Change is a reader-supported publication. To receive new posts and support my work, please become a paid subscriber.

As Political Editor and then Chief Political Commentator at The Daily Express, he played a huge role in the UK’s campaign to leave the European Union, driving the Express’s decision to become the first national newspaper to back Brexit, several years ahead of the historic 2016 referendum

Patricks’s funeral on Monday 16th June 2025 featured music from The Jam, Frankie Goes to Hollywood and some truly hilarious but also extremely moving tributes from family and close friends.

After the service, the huge congregation assembled outside Mortlake Crematorium, and then at a later reception.

In this podcast, Liam Halligan records testimonies from fellow mourners – including Nigel Farage, Ex-Daily Express Editor Peter Hill, Julia Hartley Brewer and many others.

This podcast is full of high praise from Patrick's friends and “enemies” from across the political spectrum. A common theme among these tributes wasn't just Patrick's brains and charm, but also his raw political intelligence and, above all, his prescience: someone who could “see around corners” ....

Patrick O'Flynn 29.08.65-20.05.25 RIP

With Reform topping many opinion polls, there is a growing possibility that Nigel Farage’s party could enter office after the next general election, in which case Tice would likely be Chancellor of the Exchequer.

In this timely interview, Tice castigates the economic literacy of the UK’s political and media class, explains his concerns about a looming UK debt crisis in the light of Rachel Reeves' recent spending statement and warns that the City of London could be finished under today's regulatory regime.

He also provides his most detailed ever public explanation of Reform’s economic policy agenda.

Boasting a wealth of business experience, Tice has had a successful career in property investment, where he served as CEO of CLS Holdings and Quidnet Capital. Prior to helping to establish Reform, he co-founded Leave.EU ahead of the 2016 referendum on the UK’s European Union membership and was a key figure in the Brexit movement.

For more content from Liam Halligan, subscribe to "When The Facts Change" Substack and follow on X @liamhalligan

So borrowing over the fiscal year that has just ended was £15 billion higher than forecast only last month - at the time of the Spring Statement. The 2024/25 borrowing total was an incredible £65 billion greater than the OBR’s forecast of £87 billion back in March 2024 – an overshoot of no less than 75pc.

Central government current spending topped £1 trillion last year, up by nearly £50 billion, an increase attributable in large part to public sector pay rises and higher welfare spending. The welfare bill alone jumped by £15 billion over the last year.

Public sector debt stood at £2,644 billion at the end of last month – equivalent to 96pc of GDP, a level last seen in the early 1960s. And over the last two months alone, the government spent no less than £12 billion on debt interest, much of which it funded by taking on yet more debt.

These disastrous figures make a mockery of the “£9.9 billion of fiscal headroom” that Chancellor Rachel Reeves last month claimed she will have in five years’ time. The new borrowing data is intensifying speculation Reeves will raise taxes further in the in her autumn Budget in a bid to balance the books.

But it strikes me that the UK economy is already stalling, not least due to the tax hikes she has already introduced – and that raising taxes even more is likely to generate a further slowdown, tipping Britain into a recession and making our public finances even weaker.

New survey data shows that the £25 billion increase in employers’ annual national insurance contributions (NICs), introduced from this month, alongside an inflation-busting 7pc rise in the minimum wage, has helped to push business costs up at the fastest pace for more than two years.

The S&P UK PMI composite output index - a long-established indicator based on extensive surveys of business leaders – fell to a 29-month low of 48.2 in April, down from 51.5 in March - with readings below 50 pointing to economic contraction.

This suggests that private sector output is now shrinking for the first time in a year and a half, with manufacturing lower for the sixth month in a row, staffing numbers down for seven consecutive months and service providers decreasing their business activity too.

The PMI survey noted that “April’s fall in output was the largest recorded for nearly two and a half years, consistent with GDP declining at a quarterly rate of 0.3% … with job cutting remaining aggressive as business optimism sank to a two and a half year low”.

Part of the reason for this slump is the rise in employer NICs - which, since its was announced last October, has cast a pall over hiring and broader business sentiment.

Plus, US President Donald Trump’s tariffs are already impacting Britain, along with many other countries – given the across-the-board 10pc duty on foreign goods sold in America, with higher levels on duties and exports of steel and cars.

On top of that, though, UK firms and households face the steepest energy costs in the developed world – in large part due to high taxation and heavy renewable energy subsidies that are added to our utility bills.

During the year to March, inflation was 2.6pc, down from 2.8pc the month before. This has led to widespread speculation that the Bank of England, having lowered interest rates from 5.25pc to 4.5pc since last summer, will not only cut interest rates again when the monetary policy committee next meets on 8th May, but will enact three or four more cuts by the end of this year.

I don’t buy that. For one thing, inflation will shoot up again when the figures for April are published, not least due to the 6.4pc rise in the energy price cap from the start of this month – taking the combined gas-electricity bill for the typical households to £1,849 per year. By this autumn, inflation will be well above 3pc, heading for 4pc – double the 2pc target – which will likely make it impossible for the MPC to implement multiple rate cuts.

This morning, Mike Graham asked me on to Talk Radio, to discuss Energy Secretary Ed Miliband’s latest plans – to introduce zonal energy pricing, which would split the country's single national power market into different regions and ultimately raise bills for southern England households.

As I discuss with Mike, high energy prices - not only for electricity and gas but also petrol and diesel – not only hurt UK households directly, but also indirectly as these fuels are key inputs in the production of almost all goods and services. In addition to pushing up inflation, high energy prices are hitting real GDP, wages and productivity.

Weighed down by a tax burden now at a 70-year high, and sky-high energy costs, the UK economy is in danger of stalling very badly. We are falling into a “doom loop” – in which weak growth threatens the public finances, causing ministers to reach for further growth-damaging and ideologically-driven tax hikes and subsidy-funding increases in energy bills.

Pretty soon, as growth fails to materialise, the Prime Minister will be looking for scapegoats. Ed Miliband is most certainly in the firing line.

When The Facts Change is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.

Living in Moscow for twenty five years, Calvey learnt the language, married a Russian woman, raised a family and forged an unmatched network of personal and business contacts. His investment funds earned enormous returns for blue-chip Western investors as the Former Soviet Union opened up to international business. Bloomberg described Calvey as “a legend in the Russian market - with a reputed aversion to any kind of foul play”.

But in 2019, after a dramatic dawn raid, Mike Calvey was thrown into Moscow’s notorious Mattrosskaya Tishina prison – famous for holding Soviet-era coup-plotters – on charges trumped up by local business rivals.

As the White House and Kremlin argued about his incarceration, he was caught for months in a Kafkaesque trap, denied access to evidence proving his innocence. And yet, bleak though his prison experience was, he found spiritual enrichment, forging unlikely friendships with his five cellmates – some also victims of Russia’s cynical justice system.

Fully exonerated of all wrong-doing, Calvey is currently Chairman of Baring Ventures, which sold all its Russian assets after Vladimir Putin’s invasion of Ukraine and now focuses on other international markets.

His newly-published book – Odyssey Moscow: One American's Journey from Russia Optimist to Prisoner of the State – is dedicated to the cellmates who helped him through his nightmare prison experience.

It is the story not just of one man – but of an era of Russian hope and aspiration derailed.

https://www.amazon.co.uk/Odyssey-Moscow-Westerners-Encounter-Russian/dp/1803997303

When The Facts Change – with Liam Halligan – is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.

We were talking at the end of a crazy week across global financial markets - and the wild swings we’ve seen in the value of stocks, bonds and currencies are likely to continue, keeping the world on edge during the coming week too.

The yield on ten-year US Treasury bills – a usually favoured financial “safe haven” – registered its sharpest weekly rise in more than two decades on Friday, with investors demanding ever more to lend to the US government, as this fully blown trade war between the world’s two largest economies escalates.

The price of gold, the ultimate refuge of spooked investors, then hit an all-time high – as Washington and Beijing engaged in an eye-watering tit-for-tat exchange, pushing the taxes on trade between the world’s two biggest economies into triple-digit territory.

None of this means that President Trump has “lost it”, as I discussed with Alex – despite the claims of increasing numbers of commentators on both sides of the Atlantic. There is method in Trump’s madness – as I suggested in a previous post.

The US President is basically right when he asserts that, for many years, global tariff patterns have been stacked against America, with both China and the European Union charging considerably higher levies on US goods sold in their domestic markets than vice-versa. There is logic – and considerable economic and political justification – behind his efforts to push for change.

Since “Liberation Day” on 2nd April, though, Trump’s deeply unconventional and extremely punchy attempts to shock other powerful economies into, in his words, “levelling the trade playing field” have caused financial markets to panic, forcing the White House if not into a U-turn then certainly a pause.

And even if Trump rides out the financial storm, and survives domestic and international political brickbats, his plans may anyway go badly awry.

That’s because the US President is trying to achieve nothing less than a recasting of the entire global trading system at America’s behest – as happened in the mid-1940s under Franklin D. Roosevelt and again during the mid-1980s under Ronald Reagan.

In both cases, the US was then indisputably the world’s most powerful economy, with the commercial and military supremacy and sufficient moral authority to impose on the world a trading regime not just made in Washington but designed to promote US commercial, political and strategic interests. These days, whoever is sitting in the White House, that may no longer be the case.

Trump has another big problem too. He’s only got four years to impose his vision – and much of America’s political and media establishment, as well as the leaders of traditional US allies, are determined he won’t succeed.

That reality won’t be lost on his adversaries in these upcoming trade negotiations, nations that don’t want the global pattern of tariffs and other trade barriers to change at all – as they benefit mightily from the status quo.

Last week’s spike in US Treasury yields raised eyebrows – and rightly so. It was the biggest selloff since the depths of lockdown in what is supposed to be the world’s safest financial asset class. The upward pressure on borrowing costs won’t be limited to America. Having said that, yields remain below where they were when Trump entered the White House in January, as shown in the graph below

US 10-year Treasury yield, year-to-date

We’ve also seen steep falls in US equity markets since Trump’s tariffs announcements, of course, Again, though, stocks were enormously over-priced ahead of “Liberation Day”. The S&P 500 Shiller CAPE Ratio - a cyclically-adjusted price-earnings ratio that collectively values the stocks across America’s biggest equity index – was seriously elevated at 37.5 ahead of Trump’s tariff announcements, way above the its peak of 27.5 just before the 2008 financial crisis.

After recent gyrations, that same index remains just below 33 – still heavily over-valued in historic terms. It may be that US stocks were anyway, due a “correction” - and it was simply a question of what would trigger the fall. And even after all the “hair-on-fire” headlines of recent days, the S&P500, at the time of writing, is still almost 5pc higher than it was this time last year.

S&P 500 Shiller CAPE ratio (cyclically-adjusted price-earnings)

This is obviously an extremely serious situation – I am not underplaying that for one moment. The US and China together account for more than two-fifths of global GDP. If they were to engage in a prolonged all-out trade war that pushed them both into recession, that would seriously impact the entire world economy.

Having said that, amidst all the finger-pointing and posturing, both Washington and Beijing are very heavily incentivised to come to some kind of agreement – not least the Chinese, seeing as while the US sold goods worth $145 billion in China last year, the People’s Republic sold goods worth $440 billion in America, over three times as much.

What Trump needs badly to keep his tariffs reforms on the road is some political wins – proof that his plan can work, that other countries will indeed negotiate, that order will emerge from chaos, resulting in mutually beneficial trade deals.

So, as I told Alex, here’s a predication. Riding his luck, and despite America’s diminished power, Trump may well succeed in signing new bi-lateral trade deals with important trading partners over the next few months.

And the first could even be the UK.