Britain’s fast-improving economy won’t save the Tories

LONDON — It should be the moment Rishi Sunak gets to declare victory over inflation — and receive thanks from a grateful nation. Polls suggest his big day may not pan out quite that way.

The Office for National Statistics announced the latest inflation stats Wednesday morning and the British prime minister has plenty to crow about on the cost of living. "Today marks a major moment for the economy, with inflation back to normal," Sunak declared.

The Office for National Statistics published new CPI data showing inflation in April was 2.3 percent, down from 3.2 percent in March and down from a whopping 11.1 percent high when Sunak first entered office. It's tantalizingly close to the Bank of England's crucial 2 percent target.

Yet the news that — as Sunak has been promising for his entire time in office — the economic outlook is finally looking brighter seems to have come too late. For his Conservatives facing down the barrel of an expected wipeout at a general election expected this fall, it's no longer about the economy, stupid.

Wednesday's figures give the prime minister an opportunity to claim he has made tough decisions — and that Brits can now reap the rewards of looser monetary policy. "This is proof that the plan is working and that the difficult decisions we have taken are paying off," he said as the numbers dropped. "Brighter days are ahead, but only if we stick to the plan to improve economic security and opportunity for everyone."

This is particularly salient after the International Monetary Fund on Tuesday predicted the Bank of England could slash interest rates three times this year.

But with Conservatives’ poll ratings apparently stuck, the good economic news seems to be falling on deaf electoral ears, with nothing Sunak does or says changing voters' view of his party.

POLITICO’s poll of polls shows Labour’s lead over the Tories has stayed within the narrow range of 16 to 21 points for the past 12 months.

Polling also consistently shows the public trusts Labour with the economy more than the Conservatives — a trend which began soon after Sunak's predecessor Liz Truss' disastrous 49 days in office, when the markets went into meltdown over unfunded tax cuts designed to boost growth.

Now some Conservative MPs are worried that the improving economic picture is just too little, too late for Sunak.

Green shoots

The economic outlook may be at its most positive for almost three years, but voters may not be feeling it by the time an expected October or November election rolls around.

The Bank of England revised up its growth forecasts for the next two years at its latest meeting and the IMF on Tuesday said Britain had achieved a "soft landing" after a series of economic shocks.

Despite a prolonged period of economic stagnation, the unemployment rate is at a historically low 4.3 percent, while the ONS says wages are growing at a decent clip of around 6 percent.

Most analysts now expect a succession of interest rate cuts from the BoE between now and the end of the year. That would give businesses and consumers relief, which could bring down the cost of a new £250,000 loan by more than £100 a month.

Sunak and his team are hoping this filters through to the electorate and that they can portray Labour as a risk to the country's economic recovery.

"I'm not saying everything is easy on people now, but the economy is improving and people will start feeling less pressure for the rest of the year," a Downing Street aide said. "Even the ONS recently said the economy is going 'gangbusters.'"

A minister told POLITICO that good news on inflation should mean "there is the avoidance of constant negativity" in the press.

"It will be hard for the BBC to lead bulletins about the cost of living crisis if inflation has come down to 2 percent," they said. "There will also be the grudging acknowledgement that the government has made tough decisions to get inflation down."

Gabriella Dickens, an analyst at AXA Investment Managers, said consumer confidence would be a key metric to gauge whether people are actually feeling better off. Gfk's Consumer Confidence index has improved from previous lows, however this progress has stalled in recent months.

Dickens said this is a metric that still has substantial room for improvement and that people were still cautious about making major purchases.

She also said the U.K.'s 0.6 percent growth in the first quarter of 2024, which pulled Britain out of a recession, is unlikely to be repeated any time soon.

“We probably won’t see another number like that in the remaining quarters of the year,” she said. "I do think we will see growth, but nothing that strong.”

A Major problem

Some Conservative MPs have been looking to the past to make sense of the current moment.

One Cabinet minister said Liz Truss’s short spell in office had trashed the Conservatives’ reputation for economic competence and that Sunak had been playing catch-up ever since. 

The frontbencher said there was a real possibility the financial market chaos caused by Truss’ premiership would become this government’s irrecoverable “Black Wednesday moment,” when the then Conservative PM John Major largely lost the public's confidence on the economy in a single day as Britain crashed out of the European Exchange Rate Mechanism.

A backbench Tory MP said the Tories' 1997 wipeout against a Tony Blair-led Labour may be indicative of the party's future fortunes.

The same MP said that "in 1997, three years of economic growth made no impact" for the Conservatives after losing the public's trust on the economy.

"It is going to be very hard," they added, predicting the same dynamic could be at work in 2024.

Tom Lubbock, co-founder of polling firm JL Partners and ex-analytics chief for the Conservatives, said improving economic indicators “are background music and what matters is people have decided it’s time for a change of approach to everything — be that the economy or  the public services.”

“Maybe they get a few more points, which would make a big difference, but it has to move the Conservative brand on economic competence which has gone in completely the wrong direction,” Lubbock said.

Lubbock said Truss "triggered" the public's loss of confidence in the Tory Party's ability to manage the economy, but that "it was cemented in May, June, July last year when Rishi Sunak was in power" and inflation stayed stubbornly high.

"Everything went wrong at that point,” he said.

Things are now starting to go right for the PM, but the polls are still no better.

One hope for Sunak would be that an England win in the Euro 2024 football tournament provides a serious economic boost and created a feel-good factor across the U.K.

But, as football fans would know, betting on the Three Lions to win anything is never a good idea.

This story has been updated with the latest inflation data.