A year after its landslide win, Britain's Labour Party is navigating a tougher-than-expected path

CNBC

04-07-2025

It's been one year since Labour returned to power in a landslide victory that appeared to show the party had turned over a new leaf after 14 years in opposition.
But the last 12 months have been nothing short of tumultuous for British Prime Minister Keir Starmer.Big promises, especially on the economy, have failed to materialize and as a result, Starmer's popularity has plummeted in the polls. When he became prime minister a year ago, 44% of voters polled by YouGov had a favorable opinion of Starmer. By May this year, that figure had fallen to a record low of 23%, although his rating has improved since then, standing at 28% in June.The government's main mission was to kick start growth and make people better off but a year on, business optimism, productivity and job creation remain muted – pressured in part, by a rise in the national living wage and employers' national insurance contributions.
Meanwhile, high borrowing costs and inflation continue to weigh on household finances.
Despite the U.K. growing more than expected in the first quarter, economists expect it to get worse from here, especially as the impact of tariffs by U.S. President Donald Trump hang in the balance.Meanwhile, Chancellor Rachel Reeves vowed to fix public finances, but her pledge to rule out both tax rises on working people and any increase in borrowing has left her in a difficult position.Ultimately, Reeves' tenure has stood out for a series of U-turns on welfare, spending cuts in her "Spring Statement" and speculation about whether she will be in the job by year-end.
With little room to maneuver, analysts now see a rising prospect of fresh tax hikes in this "Autumn Budget" — when the chancellor next sets out the government's taxation and spending plans — in a move unlikely to gain Labour favor with voters.
"When it comes to the Autumn Budget, whoever the chancellor is, they'll have some really difficult decisions to make," said Simon Pittaway, senior economist at the Resolution Foundation, told CNBC Wednesday.
"Sticking to the existing fiscal rules is really crucial, that would signal credibility and confidence to the market. Some combination of higher taxes and lower spending towards the end of the forecast period might be the way forward," he added.
Domestic issues aside, Labour has arguably found more success on the international stage with the government delivering a triple whammy of 'historic' trade deals with India, the U.S. and the EU.While many political commentators have hailed these developments as major breakthroughs, the overall economic impact remains to be seen.
It hasn't been enough to get Labour's ratings back on track. Keir Starmer's popularity with the public fell to a record low in May, according to a YouGov survey.
"I think the reset of relations with the European Union is important. [There's a] long way to go with that, but that sets us back on a sensible track, and I think he [Starmer] has managed this incredibly difficult task of working with President Trump, really quite adroitly," Philip Rycroft, former permanent secretary at the Department for Exiting the European Union, told CNBC Wednesday.
"We have the trade deal, and it's been trumpeted as historic, and I wouldn't call it that. It's essentially limiting the damage that Trump would have done otherwise to our trade. And all of this has required the eating of quite a lot of humble pie," Rycroft noted.
"You have to make these decisions conscious of what is in the national interest, and so trying to ride that tiger is the right thing to do, and he's done it so far pretty well", he added.
At the same time as Starmer's popularity has taken a hit, rival party Reform UK is gaining favor. Recent YouGov polling shows that Nigel Farage's party is on the way to get the most seats, if an election took place this year.
"The rise of Reform illustrates the level of disaffection with politics and political outcomes," said Rycroft, who noted that "this should be redressable by good policymaking, but it will take time.""I think there's always a risk that the reaction from the political classes to trim their policies in response to those sort of popular pressures, thereby not making the tough decisions that are required to deal with the problems that are driving that disaffection. So my guess is that policymaking as usual will not be sufficient to deal with the underlying discontent that is driving the rise of Reform."But as bad as the outlook may be for Labour, with another four years until another general election, Starmer may still have time to turn the ship around.
"So it comes back to this question, will the Labour government, with that big majority, seize the moment and make some of the changes this country requires to give people a sense that we're on the right track again?," asked Rycroft.