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5 January 2024

Sunak is gambling on a better economy in 2024

Though the economic numbers are improving, an autumn election may not be such a good idea.

By Will Dunn

The most basic piece of advice in every management book (I’ve read them so you don’t have to!) is that people respect clear decision-making. That is after all the point of a leader, to decide, and in the cocktail of heuristics and biases that guides our hand at the ballot box, decisiveness is often a stronger ingredient than honesty.

Rishi Sunak was already seen as indecisive by most (57 per cent) of the British public the last time YouGov polled on the subject in mid-November. Not great, but not actually that far behind Keir Starmer (of whom 50 per cent of voters considered to be indecisive in the same poll). Why, then, did Sunak tell the public, much of which thought there would be an election in May (and much of which want one then or before, according to another recent poll) that the general election won’t happen until “the second half of this year”? This only makes him appear even less decisive, especially given the rather faint pencilling-in that this is a “working assumption”.

One explanation may come from the PM’s former employer, Goldman Sachs, which released a note yesterday morning (4 January) declaring that the investment bank had upgraded its expectations for the UK economy in the next year, with GDP growth rising from 0.5 per cent to 0.6 per cent and interest-rate cuts arriving in May. A report from Bloomberg Economics, also published yesterday, forecast inflation dipping below 2 per cent in the spring (meaning rates will fall). At the same time, the Purchasing Managers’ Index for services (which make up about 70 per cent of the UK economy) rose in December; S&P called it “a solid increase in business activity that was the fastest since last June”. Mortgage rates and the cost of government borrowing have fallen from their autumn peaks, while real wages are still enjoying a rare period of growth.

It may be, then, that Rishi Sunak sees being called a “bottler” a price worth paying if the public feels better off when it finally gets the chance to vote on whether he should run the country.

Will people feel better off? Part of the Tory base already does, thanks to the Bank of England’s Andrew Bailey. As the Resolution Foundation reports this morning (5 January), households have enjoyed a net £16bn windfall from higher interest rates, because savings have grown faster. However, this is a benefit that mostly accrued to older people who have accumulated savings and paid off their mortgages. Households in which the adults are 25-54 (“working families”, “strivers”, “JAMs”, or whatever you prefer to call the quiet bat-people) have more debt than savings, and they have lost out.

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Nor is the state itself likely to see a sharp improvement. At least 26 local authorities are thought to be at risk of issuing Section 114 (“bankruptcy”) notices. It’s possible that a university could become insolvent next year (35 higher education providers currently expect to run a deficit for at least three years) and even as water bills rise, the country’s biggest water company, Thames Water, might run out of money by April.

And it isn’t as if the global events that helped pile pressure on the UK economy – high energy prices due to war, disruptions to global supply chains – have gone away; with the risk of a wider war in the Middle East, some of them look uncomfortably close to renewing their impact.

The choice of a later election might be optimistic, then, or perhaps it’s just necessary: it might be taken as an acknowledgement that Sunak’s only hope of winning is if the UK economy delivers a real improvement in living standards by the autumn.

This piece first appeared in the Morning Call newsletter; receive it every morning by subscribing on Substack here.

[See also: To win, the Tories need to defy electoral history]

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