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The Tories' big bet is that living standards will soon start to rise

Cameron's hope is that warnings of a "cost of living crisis" will fade as higher growth translates into higher wages. But Labour remains sceptical.

Ed Miliband and Prime Minister David Cameron during the service to celebrate the 60th anniversary of the Coronation of Queen Elizabeth II at Westminster Abbey, on June 4, 2013 in London. Photograph: Getty Images.

Both David Cameron and Ed Miliband used the former's Commons statement on last week's European Council meeting to thrash out the arguments over last Friday's GDP figures. After noting that Cameron had vowed to build a "recovery for all" (suggesting that it is currently just a recovery for some), Miliband challenged him on whether this was an admission that there is a "cost of living crisis". He pointed out that the UK has "the highest inflation in Europe" (2.7%) and that wage growth in the most recent quarter (0.7%) was the lowest "on record".

Cameron responded by reminding Miliband of his prediction that public sector job losses would outweigh private sector job creation and boasted that, after earlier warnings of recession, the UK was now forecast to grow "more than twice as fast as Germany". The PM's big bet is that Labour's warnings of a "living standards crisis" will prove similarly mistaken as higher growth translates into higher wages. In the view of the Treasury, the latter are a "lagging indicator" that will come to mirror the rise in GDP. 

But Labour remains confident that the government lacks a strategy to ensure that the proceeds of growth are fairly shared. While there may be one or two months before the election in which wage increases exceed price rises, it believes that any gains will be concentrated at the top (as in April 2013 when real wages rose after deferred bonuses were paid out following the abolition of the 50p tax rate) and that the damage done since 2010 (the average earner is £1,500 a year worse off since May 2010) will continue to weigh heavily on voters' minds. But in George Osborne's words, the Tories believe that "if Britain is growing then the finances of Britain's families will start to grow". Whichever is right will do much to determine the outcome in 2015.