Keir Starmer’s Resignation: Political Instability and Challenges for the UK Economy

At present, the British economy demonstrates a combination of weak economic growth, elevated inflation, and strained public finances.

According to publications by the Office for National Statistics (ONS), UK GDP grew by only 1.0% in 2024 and by 1.4% in 2025. Forecasts for 2026–2027 have been revised downward. The IMF projects annual GDP growth of about 0.8% in 2026. The reasons cited for the low growth include relatively low labor productivity, insufficient investment, and weak consumer demand, forming a structural rather than cyclical slowdown.

According to data published by Reuters, the UK budget deficit in the 2025/26 fiscal year amounted to 4.3% of GDP, and in May 2026 government borrowing significantly exceeded expectations—£23.3 billion versus a forecast of £18.5 billion. A positive trend is that the budget deficit for the last fiscal year fell to a six-year low. However, this was achieved at the expense of deteriorating conditions for the population: tax increases, tax threshold freezes, and the termination of temporary energy support measures.

The level of public debt is substantial and continues to grow. According to IMF statistics, in 2025 the UK’s gross public debt amounted to 102.3% of GDP, while net public debt stood at 93.8%, corresponding to high fiscal risks. Government borrowing exceeds pre-pandemic levels. According to ONS statistics, the amount the UK Government spends on servicing public debt reached £97.6 billion in the 2025/26 fiscal year compared to £85.4 billion in the previous year. This is the second highest figure in monetary terms since the 2022/23 fiscal year, a period characterized by heightened geopolitical tensions and significant inflation growth in the UK. Elevated vulnerability to shocks and rising interest rates persists.

In its June report, the Bank of England kept the rate at 3.75%, noting that consumer price inflation stood at 2.8% (with a 2% target) and is likely to be higher later in 2026 due to problems in the energy market. The regulator acknowledges that demand remains weak, the labor market is gradually softening, and GDP growth in the near term will be subdued. This combination of parameters is characteristic of a stagflationary regime: the economy grows slowly while price pressures remain noticeable. The Bank of England points to rising energy prices, accelerating food inflation, and the risk of secondary effects through wages and expectations. For households, this means further compression of real incomes and reduced consumer confidence; for businesses, higher costs and uncertainty in planning prices and investments.

One of the serious problems that Keir Starmer failed to contain as Prime Minister was undesirable immigration and the related negative phenomena. Medium- and long-term challenges that future prime ministers will also have to address include population aging, the transition to a low-carbon economy, and, overall, the need to choose priorities in the structure of budget expenditures and revenue sources.

Thus, under current conditions, the UK economy is entering a phase of heightened political and macroeconomic volatility. In practice, this means increased risks for the budget, the investment climate, and confidence in economic policy as a whole.

Author: Candidate of Economic Sciences, Associate Professor of the Department of World Economy and World Finance, Financial University under the Government of the Russian Federation, Moscow Svetlana Eduardovna Tsvirko.