Rishi has scored an economic triumph – and Labour will be seething
The latest inflation numbers show that the Bank of England’s target measure has fallen to its lowest level since 2021. The CPI fell from 3.2 per cent in March to 2.3 per cent in April, both well down on the late 2022 peak of over 11 percent.
There is some excitable over-analysis of the implications of this figure coming in at 2.3 per cent rather than the 2.1 per cent the market expected. The reality is that that difference doesn’t mean anything much. The broad picture is of inflation way down, expected to stay down, and of interest rate cuts on the way.
This is a big change from the past few years and is going to mean the government’s economic critics need a new story. “Cost of living crisis” is a good headline when inflation is in double digits, wages are barely rising, household energy bills projected to soar and politicians are suggesting with a straight face that their opponents’ preferred economic strategies will take interest rates to 7 percent. When inflation is 2 percent and expected to stay there, household gas bills are falling rapidly, interest rates are coming down yet the most recent wage data shows wages, a new story is required.
Labour currently seems reluctant to let the “cost of living crisis” theme go – understandable, perhaps, giving how politically fruitful it has been for the past couple of years. The “LabourList” political blog, where Labour members go to debate policy and strategy, carried an article only a couple of days ago declaring that “The general election will be a cost-of-living election”. In her response to the latest inflation figures, Rachel Reeves seemed to still be trying to hint back to the mini-Budget and the rather implausible suggestion that that was a factor in current mortgage rates.
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From the Right, the current main economic criticism seems to be directed at the Bank of England, with both right-wing Conservative MPs and the Reform Party claiming that the Bank of England has been too slow to cut interest rates. For what little it’s worth, I agree, but the political salience of that argument isn’t going to last past the afternoon when the Bank finally does start cutting – which may come as soon as next month.
The government’s economic critics on both Left and Right are going to need to switch away from cost of living issues to something new. There is still plenty for them to say, of course. Economic growth has been tepid over a number of years now. The government has failed to enact the structural reforms that might have addressed that. Indeed, when Liz Truss attempted supply-side reform her government almost immediately fell, and Sunak’s right-wing critics regard this as their single strongest criticism of him. Labour has made a strong critique in this area as well, and says it wants to “get Britain building again”.
Yet even here things are not straightforward. The economy is growing at a fair lick just at present, and some of the new technologies now finally coming into play may be a factor. The most recent PwC AI Jobs Barometer suggests productivity growth is 5 times faster in economic sectors more exposed to AI. If similar (or even greater) growth boosts are associated with other technologies on the cusp, such as driverless cars, lab-grown meat, cancer vaccines and green tech, that could render almost irrelevant the government’s supply-side failings of the past decade and more.
The strongest remaining ground for criticism is probably fiscal. Household taxes have risen markedly and will rise further. Public spending is far too high and the NHS and welfare cry out for reform. Labour has tried to reposition itself even here, saying taxes are too high and the NHS needs reform. But whether it will actually do anything about that when it comes to office very much remains to be seen.