Consciousness of Sheep
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There is something dark about this year’s Christmas adverts. This is likely due, in part at least, to the increasing use of AI backdrops for video that was filmed in the Summer. But it isn’t just the unnatural lighting. The mood is gloomy too – the advertisers realising, perhaps, that most Britons have little to cheer about as 2025 comes to an end. And so, Argos treat us to a kidnapping whose victim is forced to consume, while M&S have a rehabilitated Dawn French along with hundreds of miserable drivers stuck on an AI generated version of Chris Rea’s Road to Hell. Meanwhile, Sainsbury’s offer us a thinly veiled representation of our current over-taxing government in the form of the taxman’s fist stealing Christmas dinner from the table.
In this, the advertisers are no doubt reflecting a gathering economic gloom that is becoming palpable even for the top ten percent of earners (who account for more than a quarter of all consumption). Certainly, most consumers are tapped out, as recently seen in the dismal failure of Black Friday. And while there is some evidence of higher footfall in the weeks running up to Christmas, this does not necessarily translate into increased spending. Indeed, With nearly 90 percent of us concerned about the cost of living, here is good reason to expect Christmas sales to be down on 2024.
Unemployment is rising faster than any time since the 2008 crash. Growth is entirely absent. While inflation remains stubbornly above three percent, as the price of essentials like energy and unavoidables like council tax continue to increase. Indeed, we are collectively paying more tax than at any time since the end of World War Two. And in the very likely event that growth fails to put in an appearance in 2026, the government’s trilemma between raising taxes, cutting spending and increasing borrowing is increasing as ever more of us try to save what discretionary income we have against increasingly difficult economic conditions.
Suffice to say that 2026 looks set to continue the negative trends that I identified this time last year. In that end of year article, I made 10 predictions for 2025:
- “Just like the 1970s”
- Enshitification continues
- “Dunkelflaute” enters the lexicon
- The decline of the uniparty
- Labour fail
- Tory doldrums
- The rise and rise of Reform UK
- A real “far right”
- Trumpist neoliberalism
- And a big dragon king?
As I explained, although the superficial combination of faltering growth and stubborn inflation might have echoes of the 1970s, the structural situation is entirely different. Indeed, by the end of 2025, only the government and monopoly utilities like water and electricity have been able to pass on rising costs as higher prices to consumers. But in the discretionary side of the economy, disinflation, and more recently deflation, has set in as businesses discover that increased prices translate into falling sales. Not, of course and as predicted, news outlets and self-identifying “experts” schooled in neoclassical economics could avoid making the comparison.
Enshittification continues apace as secretly failing Big Tech corporations seek to squeeze the last few dollars and pounds out of us. The most recent example being Facebook’s proposal to make us take out a $144-per-year subscription to post more than two links per month… something that is more likely to kill Facebook than to increase its revenue. Meanwhile, there is a somewhat frantic aspect to YouTube’s incessant barrage of advertising – likely a response to falling revenue and a desire to drive viewers to take out a £96-per-year subscription to go ad free. Elsewhere, Microsoft has forced it’s irritating and largely unnecessary Copilot AI onto it’s 345 million users to justify a £30 hike in an annual subscription. Nor is it just Big Tech that is doing this. Among the UK’s favourite confections are Club and Penguin biscuits, but these can no longer be called “chocolate biscuits” because the ingredients have been enshittified.
The word “Dunkelflaute” hit the establishment media as predicted – although for the opposite reason… the big renewable energy failure across Iberia at the end of April. In Spain and Portugal, where grids were running almost entirely on solar electricity, the lack of inertia in the system led to a cascading failure, whereas Southern France, where nuclear baseload was available was far less badly hit. This caused UK establishment media to finally wake up to the risks posed by our increasing reliance on wind, which, of course, does not always blow in the coldest days of Winter.
The decline of the Uniparty (Tory and Labour) continued. At the beginning of 2025, Labour was on 26% and the Tories 22%. By December, they had dropped to 18% and 17% respectively. Labour simply failed to enjoy the mythical “first 100 days” following their 2024 election win and quickly alienated their supporter base by attempting to cut benefits to pensioners and disabled people. And following the tax-hiking 2024 budget, their support slumped further. Nevertheless, and despite growing rumours of leadership challenges, Keir Starmer did indeed end the year still firmly in office as Prime Minister. Meanwhile, the Tories have failed to bounce back despite Labour’s unpopularity, suggesting that this is something more profound than a mid-term slump. Voters seem to be done with the two parties which dominated UK politics for the last century and are now looking for alternatives. The two beneficiaries being the Green Party, whose polling rose from 8% to 16%, and Reform UK, 24% to 27%. These small vote shares would seem to point to a coalition government in 2029 if the trend continues. But because of the geography, they could see Reform UK winning a clear majority, with the LibDems emerging as the official opposition, while Labour and the Tories end up in fifth and sixth places respectively, with just 42 seats between them:
This is likely an outlier. And anyway, as Harold Wilson pointed out, “a week is a long time in politics,” and the next election is still three-and-a-half years away. Nevertheless, and despite considerable pearl clutching among the professional managerial class, there is nothing obvious at the end of 2025 to suggest that the uniparty’s fortunes are about to change… and the more they attempt to paint Reform UK as deplorables, the more the previously disenfranchised masses seem inclined to vote for them in just enough numbers to see them elected.
Next Year’s Welsh, Scottish and local English elections (assuming the government doesn’t find a pretext to cancel them) will be a better test of the apparent forward march of reform than any of the polling conducted so far… but nowhere is it written that support for the uniparty has to increase.
A real “far right” failed to show up in numbers worth mentioning though. The truly fascist Patriotic Action group still has a membership that can fit into a phone box, while those right-leaning libertarians and Thatcherites not convinced by Reform have gravitated toward the “movements” established by Ben Habib and Rupert Lowe, neither of which is going anywhere… at least for the time being. When it comes to elections, those on the right have just Reform UK, whereas those on the left have a choice between Jeremy Corbyn’s Your Party, The Green Party, and even the LibDems.
Across the pond, Trump emerged as a proverbial “bull in a china shop” – his purpose seeming to be to so enrage and confuse his opponents that they fail to oppose the actual policies being implemented by his administration. On the domestic economic front, neoliberal economic policies did continue. But in a massive warning sign of America’s growing economic weakness, Trump attempted to erect tariff barriers on competitor economies. But, while the even weaker Europeans buckled, China raised its own restrictions on key components that the USA no longer makes, forcing Trump to back down. The positive view of this is that the Trump administration is putting measures in place to shore up the dollar when the inevitable crash arrives. The negative view is of an administration flapping like a beached fish in the face of an overwhelming and unresolvable multi-trillion-dollar debt bubble.
Nor did the anticipated dragon king turn up. What we did see by the end of 2025, was growing establishment media coverage of the AI bubble, with luminaries like Jamie Dimon and Andrew Bailey taking to the airways to warn of the growing danger. Notably, however, media outlets tended to portray the bubble as self-contained. Yes, the AI companies might go bust. And yes, a lot of stock market investors will take a haircut. But life will surely go on for the rest of us. Except that most of the establishment media are oblivious to the massive borrowing that the AI companies took on in the shadow banking sector… still less the mountains of derivatives based on those debts.
So, what might we expect in 2026?
- Leadership challenges
The easiest thing to predict is the growing clamour on both sides of the UK’s uniparty for a change of leadership. Indeed, rumours of plots against Labour’s Keir Starmer were already rife before Christmas. And without a big shift in the polls going into May’s elections – the nearest thing to the USA’s mid-terms – the plotting will grow ever louder.
The Labour Party though, is notoriously bad at ditching unpopular leaders. And this will have long-term consequences. Because the most likely time for a leadership challenge will be after Labour suffers a series of defeats in the local, Scottish and Welsh elections, whereas the optimum time to change leader is several months before them. The reason for this is that local councillors and members of the Scottish and Welsh Parliaments act like a scaffolding for party activists – take away their seats and the activist base collapses, making it far harder to win the constituency at the next general election.
Calls to replace Kemi Badenoch as Tory leader are more muted. But in the run of normal (i.e., prior to the 2005 conventional oil peak and the ensuing 2008 crash) politics, as support for Labour falls, support for the Tories should rise… except, of course, the Tories are doing almost as badly as Labour and look set to be beaten into third place behind Reform and the LibDems. And given their recent track record (five leaders in 14 years), the Tories are likely to be more efficient when it comes to despatching failed leaders… even if their ability to elect competent ones is far from good.
- Economic woes continue
It should be obvious to anyone with an IQ above 50, that the incoming Labour government had no more plan for turning the UK economy around than the Tory government it replaced. All of the levers that used to produce results when pulled are now disconnected from anything in the real world. And so, politicians are left mouthing words that few believe will come to fruition in real life.
As regular readers understand, the root cause of this is the rising energy cost of energy, which translates into such things as steelworks closures, a faltering construction industry, shortages of key materials like cement, and a big shortage of skilled workers. However, unable to understand energy, the political class has resorted to throwing money which it hasn’t got at the many problems now afflicting us. Initially, this was done by borrowing. But in the absence of growth, investors have demanded higher interest rates while threatening a Liz Truss style bond crash.
In response to this, the government has sought to increase taxes in the least fair and most counterproductive ways possible. The two easiest and fairest tax increases would be to raise the income tax and to impose a far higher rate of VAT on genuine luxuries (i.e., Cartier watches and Gucci handbags, not chocolate biscuits). Instead, the government has sought to invent new taxes (such as pay-per-mile on electric cars), maintain tax thresholds (so that even people receiving pensions and welfare benefits will have to pay tax) while raising employers national insurance and the minimum wage (making the cost of employment too high for many businesses while pricing young people out of employment).
With unemployment and business failures growing as we enter 2026, with inflation (on essentials) remaining stubbornly high, and with no sign of the growth fairy anywhere in the western economies, while the UK’s tax rates are high, the tax receipts will not grow, making further government borrowing more difficult. This is why I expect the government to resort to some form of money printing (most likely some variant of quantitative easing rather than direct payments to businesses and households).
- Losing the Ukraine proxy war
It is three years since we were promised that a flurry of hi-tech NATO weapons would defeat the Russian Army in the field even as a raft of European sanctions collapsed the Russian economy. Instead, we quickly discovered that the Russians had developed weapons that we had no response to, and that, having developed the BRICS trading bloc in the eight years after the US-backed Maidan coup, the Russian economy was in far better shape than the economies of its European adversaries.
One result of this is that the EU economies are in an even worse state than the UK economy. And arguably, the growing shock is harder because the EU economies are declining faster and have further to fall. This is in large part due to the loss of the cheap Russian energy on which the EU’s industrial base depended. But it is also due to the self-harming green virtue signalling of an out of touch EU technocracy which has been as keen to close nuclear and gas power plants as coal ones. So that energy today is in short supply… which, in a market economy means expensive. And in Europe’s case, too expensive to maintain the manufacturing base.
Worse still, the EU – or rather, the people of the EU (and UK) – are on the hook for billions of euros’ worth of loans granted to the Ukraine government on the understanding that Russia would pay them back as reparations when Ukraine (and its neocon backers) won the war. But with the Ukraine military now calling up boys and old men, and with the pace of Russian advances growing, a peace deal favourable to Russia will have to be signed either this year or next… and even after that, Europe will have to come to terms with permanently high energy prices as Russia’s fossil fuel and mineral resources are diverted to the east.
- Shortening odds (1) financial crash
Even the heads of central banks are talking openly about the AI bubble. And it is only a matter of time before it bursts. Although, as Keynes famously quipped, “markets can be irrational for longer than you can remain solvent.” We cannot know what will trigger a crash, nor when it will happen. But it is hard to imagine that the bubble – which accounts for all of the stock market growth in the past decade – can continue to inflate for much longer.
That said, the bigger issue concerns the amount of money that is going to evaporate when the bubble bursts. The AI companies have billions of dollars of debt based on income streams that are counted in mere millions. But it is the various derivatives (insurances and bets) based upon the AI debt could run to trillions of dollars, with the highest estimates suggesting the paper debt mountain might be equivalent to six years of global GDP… we can only wait and see.
- Shortening odds (2) blackout
In August 2019, the east of Britain suffered a major power cut when lightning struck wind turbines in the North Sea. In 2021, it was the turn of Texas, as intermittent wind generation failed to keep up with demand in the face of a big winter storm. And in 2025, in almost the opposite weather conditions, the whole of Iberia was taken out as a drop in solar frequency caused a cascading outage.
The big fear here in the UK, and across northern Europe is that we experience a cascading outage in winter. It is common for still, high-pressure air to settle over Europe and the UK for weeks at a time, with temperatures plunging below freezing. And yet energy policy over decades has left us ever more vulnerable to a cascading outage – not just on the supply side as fossil fuels and nuclear account for an ever smaller proportion of our generation, but also on the demand side, as the installation of electric heat pumps and the switch to electric cars has been promoted without the necessary increase in firm supply.
In recent years, the UK has been saved by benign weather conditions even as the gap between supply and demand has closed. And it is only a matter of time before we experience another cascading blackout. And 2026 might prove to be the year when that risk is realised.
- Peak everything
While global oil production has bounced back from the pandemic lockdown years, hidden within the data is a growing loss of the key energy source of human civilisation – diesel. Peak diesel was in 2018, and although post-pandemic production briefly rose, we are now down to production levels last seen in 2005:
This is presenting particular problems in the UK, where the Cameron government closed our last diesel refinery because Russia could supply cheaper diesel… something that isn’t playing well today. But more importantly, because diesel does all of the heavy lifting in producing food and minerals, we are already seeing those sectors having to cut production accordingly.
Of course, we are some ways away from absolute shortages – market economies ration goods via prices – but 2006 may mark the start of a period in which even essentials become too expensive. In practice, this means households, businesses and even governments having to switch spending away from discretionary goods and services so as to continue to secure essentials… and this, in turn, means the start of a massive change to the way we all live, with, I predict, the loudest pearl clutching from those who have been advocating an end to consumption for the best part of three decades.
As we begin to lose the things we have taken for granted, 2006 may be the year when we start to get real about the end of growth.
As you made it to the end…
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