Rachel Reeves has faced a sobering wake-up call as an unexpected rise in inflation casts new doubts on the economy’s stability.

During her address at the World Economic Forum in Davos, the Chancellor expressed optimism, declaring, “this is the year that Britain turns a corner.” However, official statistics revealed that inflation surged to 3.4% in December.

This rate is the highest among G7 countries, climbing from 3.2% the previous month, and dampens the possibility of the Bank of England reducing interest rates in the near future.

The Office for National Statistics’ report highlights the challenging landscape Reeves faces. This comes after separate data indicated nearly 1,400 jobs were lost daily in the month following the Budget announcement.

December witnessed 43,000 job cuts—the most significant loss since the height of the Covid-19 pandemic—adding to the 33,000 jobs lost in November, bringing the total job losses since Labour assumed power to over 200,000.

The ONS’s grim findings on inflation and employment coincided with projections from the International Monetary Fund, which suggest that Labour is struggling to fulfill its promise of making Britain the fastest-growing economy in the G7.

Chancellor Rachel Reeves at the World Economic Forum in Davos 

Shadow chancellor Sir Mel Stride said the triple-whammy underlined the ‘economic mismanagement’ of the government.

‘Because Labour made the wrong choices, their Budget is unravelling day by day,’ he said.

‘A record-high tax burden and irresponsible borrowing are stifling growth and fuelling inflation – leaving working people worse off.

‘IMF warnings, rising inflation, 76,000 jobs lost in 2 months, and business confidence at record lows – Rachel Reeves has been dealt another harsh reality check this week.’

And while the Chancellor sought to woo the global elite in Davos, she faced a mounting backlash from business leaders at home over her handling of the economy.

Currys chief executive Alex Baldock outlined how higher taxes and rising costs – such as the £25bn national insurance raid and hikes to the minimum wage – have hit retailers.

‘If you make it harder, riskier and more expensive to employ people then fewer people will be employed,’ he said.

Rami Baitieh, chief executive of Morrisons, said ‘challenging inflation, lower consumer confidence and Budget uncertainty’ weighed on consumer sentiment at the end of last year.

And speaking about cost-of-living concerns moving forward, he said: ‘To be honest with you, we believe that [food] inflation is going up and will go up over the coming months.’

And Wetherspoons boss Tim Martin said costs have increased by £45million over the past six months as energy bills and higher taxes take their toll.

The IMF this week said the UK economy will continue to lag behind the US and Canada this year and next – dealing a blow to Labour’s pledge to turn Britain into the fastest growing economy in the G7.

While the UK is forecast to grow by 1.3 per cent this year and 1.5 per cent in 2027, the IMF pencilled in 2.4 per cent and 2 per cent for the US and 1.6 per cent and 1.9 per cent for Canada.

Ms Reeves insisted her ‘number one focus is to cut the cost of living’.

But the ONS report showed an increase in tobacco duties announced in the Budget pushed up inflation last month along with the rising price of plane tickets and food.

It was the first rise in the rate of inflation since July, stoking fears the Bank of England could delay further interest rate cuts in a blow to millions of borrowers.

Suren Thiru, economics director at the ICAEW accountancy group, said: ‘The recent easing in the financial squeeze on consumers came to a shuddering halt in December as a Christmas jump in flight and food costs and the higher tobacco duties triggered an awkward acceleration in inflation.

‘These figures make a February interest rate cut look improbable by reinforcing concerns over persistent price pressures, particularly as policymakers may want to assess the effect of escalating geopolitical tensions before loosening policy again.’

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