When Keir Starmer assumed office as UK Prime Minister in July 2024, the British economy was navigating one of its most challenging periods in decades. The country had weathered Brexit, the pandemic, an energy crisis, and the economic shockwaves of the war in Ukraine. Real household incomes remained under pressure, and productivity hovered at historically low levels. Starmer’s central pre-election pledge was to place economic growth firmly back at the heart of British politics.
A Fragile Economic Legacy
The Labour government inherited an economy that had just emerged from a technical recession, according to a Bloomberg analysis. Growth remained sluggish, and confidence among households and businesses was fragile. Public finances were strained, with public debt hovering near 100% of GDP.
Starmer — who announced his resignation on 22 June — and Chancellor of the Exchequer Rachel Reeves opted for a fiscal strategy combining disciplined public spending with targeted investment in infrastructure, clean energy, and productive sectors. A key aim was restoring market confidence after years of political instability and rapid succession of prime ministers.
Bumpy Road to Recovery
The path forward proved uneven. In 2025, the UK economy posted weak growth, with GDP rising by just 1.3% for the year. The final two quarters of the year saw stagnation, as reported by the Guardian. Meanwhile, businesses voiced concerns over rising labour costs and increased tax burdens.
Cost-of-Living Remains the Core Challenge
The most persistent challenge for the government was the cost of living. Although inflation fell significantly from its recent peaks, many citizens continued to feel acute financial strain. Annual inflation dropped to 2.8% in March 2026 — down from 3.3% in March 2025 — and held steady at that level in May 2026, defying expectations of a modest uptick. According to Reuters, the government’s inability to convince the public that daily life was genuinely improving became a major factor in Starmer’s declining political support.
Signs of Improvement in 2026
Despite earlier difficulties, economic indicators showed notable improvement in early 2026. The UK recorded the fastest growth rate among G7 economies during the first months of the year. As inflation eased, the Bank of England began cutting interest rates. Consumer spending rose, business sentiment improved, and the housing market rebounded, per Bloomberg.
One of the most positive achievements of Starmer’s tenure was the reduction in public debt as a share of GDP — falling from 99.4% to 95.1%. At the same time, borrowing costs for households and businesses declined.
Unemployment Remains a Concern
Unemployment continued to weigh on the economic outlook, though specific figures were not provided in the original text.