Since being elected last year, the UK government’s record on economic growth has been cautious rather than transformative. The economy has avoided recession but many of the Chancellor’s targets remain unmet. Emeritus Professor Joe Nellis gives his assessment of the economy’s performance in four key areas: economic growth, public finances, inflation, and unemployment.
Economic growth
Grade: C — must do better.
The economy has stabilised and is showing some signs of life, but growth remains sluggish by historical standards. The government has prioritised fiscal discipline and credibility, but business investment has yet to recover decisively and productivity gains are limited. Without stronger investment, skills development and productivity reform, economic growth risks remaining steady but uninspiring.
The only reason that this mark isn’t lower is that the economies of our peers in the G7 are hardly booming either.
Public finances
Grade: B — showing recent improvement.
Borrowing has remained high but is broadly under control, helped by stronger tax receipts — as a result of an increased tax burden — and a cooling inflation environment in recent months. Debt levels are still elevated, limiting fiscal room for manoeuvre.
This approach has reassured financial markets, leading to a decrease in gilt yields since Autumn that has soothed the impact of high debt-interest costs. There’s a long-way to go before the economy’s debt-to-GDP ratio moves in the right direction, but a turning point may just have been reached.
Inflation
Grade: B — set to improve further.
Despite peaks of almost 4% in mid-2025, we have seen a clear easing in inflationary pressure, helped by lower energy costs and easing supply constraints. However, progress has been uneven. Core inflation has proved stubborn, services prices remain elevated, and cost pressures continue to weigh on key sectors.
Inflation is set to continue moving towards the Bank of England’s 2% target — it could be back on target be as soon as the summer. That is, of course, dependent on international events and any impact on global energy prices.
It’s also worth remembering that there’s only so much credit (or blame) the Government can take when inflation goes down (or up).
Unemployment
Grade: D — disappointing.
The UK government’s record on unemployment has been disappointing, to say the least. The headline unemployment rate is now 1.1% points higher than when they came to office.
Hiring has slowed, vacancies have fallen, and youth unemployment has increased, raising concerns about school-to-work transitions and long-term skills scarring. There is a danger that our future workforce is irrevocably damaged as young people experience prolonged spells out of work. While some of this down to over hiring as we came out of the pandemic and potentially the early impact of AI, much of this is in the hands of the state.
The key test for the government is whether it can prevent short-term labour market softness — particularly among younger workers — from becoming a long-term drag on productivity and growth.
