How Is The Economy Going To Affect The Next Election?

A year of stagflation now seems inevitable but 2024 may see the beginnings of an economic recovery, says Sean O'Grady

- Sean O'Grady

Downbeat economic data from the IMF (International Monetary Fund) and ONS (Office for National Statistics) this week, and some cautious remarks from the Bank of England about the safety of bank deposits, have raised doubts about whether the UK economy is headed for recovery, and with it the electoral prospects of the Conservatives.

The question is how well Rishi Sunak and Jeremy Hunt can align the electoral and economic cycles, and engineer a “boomlet” and tax cuts in time for polling day.

What’s the bad news?

The economy will do badly this year, both by historical standards and by comparison with other advanced economies. The UK may do better than was feared last autumn, after the disastrous “dash for growth” under Liz Truss and Kwasi Kwarteng, and it may avoid a technical recession (two successive quarters of negative growth).

However, it will be bouncing along the bottom, and will probably end up only marginally bigger or smaller than it was in 2022. A smaller pie, in other words. Meanwhile, taxes, interest rates and prices are still going up, and wages are not keeping pace.

What’s the good news?

Some sectors, such as retail and construction, are holding up well. Unemployment remains low, and wage growth in the private sector isn’t falling as far behind prices as it is in the public services. There hasn’t been a house-price crash, and there is a calmer mood in the markets.