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Warning food prices could soar by 20% as pressure mounts on Reeves over flailing economy

Exclusive: Fears of a massive rise in the cost of imports have fuelled calls for Rachel Reeves to cancel her China trip with warnings that the UK is on the cusp of a financial crisis and recession

David Maddox,Kate Devlin
Thursday 09 January 2025 21:31 GMT
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Rachel Reeves raises employers’ national insurance contributions

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Rachel Reeves has been hit by a triple whammy of setbacks that appear to have shattered Labour’s dreams of boosting Britain’s economic growth.

With the chancellor set to fly to China on Friday, the pound fell amid fears of surging borrowing costs and future tax rises – and a shocking new report seen by The Independent suggested that the price of food and household staples could rise by 20 per cent.

The Chartered Institute of Procurement and Supply (CIPS) revealed that massive problems with supply chains and trade routes, exacerbated by Brexit, will see imports cost between 5 and 20 per cent more, fuelling a new cost of living crisis.

The fresh concerns come as the chancellor is under severe pressure to cancel her controversial trip to China as the UK economy faces another tumultuous day on the markets. As well as problems with the UK’s supply chains, a series of indicators linked to Ms Reeves’s Budget last October have put the UK on the cusp of a financial crisis and recession. These include:

  • Gilts underpinning government debt at a higher level than during the crisis that forced Liz Truss out of office
  • Concerns that Ms Reeves will shortly be forced to abandon her “golden rule” on borrowing
  • Fears that she will be forced to raise taxes further in the spring
  • Business confidence falling to an all-time low, with chief executives claiming that Labour lied to them before the election
  • Wages and recruitment stagnating as a result of the hike in national insurance
Chancellor Rachel Reeves is scheduled to visit China this week
Chancellor Rachel Reeves is scheduled to visit China this week (PA Wire)

Ms Reeves sent out her deputy Darren Jones, the chief Treasury secretary, to face an urgent question on the state of the economy in the Commons on Thursday with opposition MPs claiming that she had gone into hiding.

The row came as disgraced former prime minister Ms Truss launched a legal challenge to clear her name over her disastrous mini-Budget, which Labour is blaming for the country’s economic crisis.

Shadow home secretary Chris Philp blamed Labour for the soaring cost of government borrowing and said Ms Reeves “should stay in the UK fixing the mess her Budget has created”.

Liberal Democrat leader Ed Davey hit out at the Tories’ handling of the economy, but also said Ms Reeves should cancel her visit and instead make an emergency announcement scrapping her national insurance hike, which his party has dubbed a “jobs tax”, and that she should rebuild trade links with Europe.

On Thursday, the pound tumbled to its lowest level against the US dollar for over a year as borrowing costs continued to surge, heaping more pressure on the government’s economic and spending plans.

Mr Jones told MPs that UK gilt markets were continuing to “function in an orderly way” and that there was no need for any kind of emergency intervention.

But the deputy leader of Reform UK, Richard Tice, a millionaire businessman, told him during exchanges that “the country is about to plunge into a financial crisis”.

Treasury minister Darren Jones responds to an urgent question on borrowing costs in the House of Commons
Treasury minister Darren Jones responds to an urgent question on borrowing costs in the House of Commons (PA Wire)

Mr Tice later added: “We have seen with the markets before that when confidence goes, it goes quickly, and it’s brutal. That’s what we are facing.”

Mr Jones faced jeers from opposition MPs who demanded to know where Ms Reeves was, with shadow chancellor Mel Stride commenting that she was “nowhere to be seen” and one Tory accusing her of already having “fled” to China.

Ms Reeves is due to jet off with a delegation of City grandees as Labour seeks closer links with Beijing as part of its bid for economic growth.

However, a report seen by The Independent, produced by the Chartered Institute of Procurement and Supply (CIPS), suggests that things are set to get even worse because of an international crisis in supply chains that is set to increase the price of imports by 5 to 20 per cent.

This calculation comes before the impact of any tariffs that Donald Trump might impose, with the incoming president threatening to spark a global trade war.

The CIPS, which has 64,000 members across 150 countries, highlighted the five biggest challenges in 2025, identified by procurement and supply chain professionals, as inflation, geopolitical instability, workforce and labour issues, supplier instability, and cybersecurity.

Donald Trump has threatened to impose tariffs that could deepen the UK’s economic problems
Donald Trump has threatened to impose tariffs that could deepen the UK’s economic problems (AP)

Any increase for businesses in the cost of imports is likely to be passed on to consumers, and items affected include food and drink, electronics, machinery, chemicals, petroleum products, and other vital supplies and household staples.

Ben Farrell, the chief executive of CIPS, noted: “We have seen multiple examples in the last year of our members stepping up to the plate on these issues, helping the organisations they lead and advise, deal with the challenges they present. From disruption in the Red Sea, drought impacting the Panama Canal, climate change, and war in the Middle East and mainland Europe, CIPS members are playing a critical role in navigating these strategic risks.”

The issue has been made even worse by Brexit, with the UK isolated from the cushioning effects of the EU and its single market. Ms Reeves’s Budget and the reforms to workers’ rights have also severely affected labour costs.

Mr Farrell said: “Going into 2025, what is clear from our research is that there are a number of strategic challenges that are likely to disrupt the smooth flow of goods and services.

“These will present particular challenges for consumers, who are likely to be disproportionately impacted unless these issues are managed effectively.

“The impact of US tariffs on trade flows, giving rise to increased political tension; the global war for talent – these and other issues will need deft handling if growth, as well as consumer confidence across the major markets, is to be maintained.”

Earlier, Mr Philp, who served in the Treasury under former Tory PM Liz Truss, told The Sun that the chancellor, along with the rest of the government, should be fired.

Shadow home secretary Chris Philp said ‘the whole government should be fired’
Shadow home secretary Chris Philp said ‘the whole government should be fired’ (PA Wire)

“Bond yields are higher than when Kwasi Kwarteng got sacked,” he said. “The whole government should be fired, frankly, including Rachel Reeves, because they jacked up taxes, they crushed pensioners, they’re crushing farmers. They’re crushing businesses with their high taxes. And this is the result, because the bond market can see that our economy is being squashed by this Labour government.”

Sir Ed said that instead of jetting off to China, the chancellor should “urgently” tell MPs that she will “cancel her counterproductive jobs tax and set out a real plan for growth”. He also hit out at the Tory party for the turmoil, saying that the country was paying an “ever higher price for the total mess the Conservative Party made of our economy”.

“The chancellor needs to realise that she’ll never dig us out of this hole without a far more ambitious plan to grow our economy, including rebuilding trade with Europe,” he added.

Responding to an urgent question in the Commons, Mr Jones said UK gilt markets “continue to function in an orderly way”. He told MPs: "There should be no doubt of the government’s commitment to economic stability and sound public finances; this is why meeting the fiscal rules is non-negotiable.”

He went on to accuse the Conservatives of having “crashed the economy” when they were in power. He also defended Ms Reeves’s China trip, saying it was “important” for UK trade and would go ahead as planned.

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