This morning brought that increasingly rare thing: good news for the British economy. GDP was revealed to have grown by 0.6 per cent in the first quarter of this year. This is the joint-fastest rate in the G7 and the strongest growth since 2019 (if we exclude the post-Covid bounceback). GDP per head – a better measure of living standards – rose for the first time in seven quarters by 0.4 per cent.
One quarter, of course, does little to change the UK’s dismal recent history. GDP per head has grown by an average of just 0.3 per cent over the last 16 years, compared to 2.2 per cent over the previous 40. Average real wages remain below their 2008 level – the weakest performance since the Napoleonic era. If today’s figures seem impressive it is largely because expectations are so low.
Rishi Sunak and Jeremy Hunt are, nevertheless, hailing the numbers as proof that their economic plan is working. In her speech at the start of this week, Rachel Reeves anticipated this manoeuvre, accusing the Tories of “gaslighting” the public. Even if GDP rose, she warned, voters would still feel worse off. This parliament will be the first on record in which living standards are lower at its end than at its start. Almost a million families are due to remortgage between now and January – and Labour has successfully pinned the blame on Liz Truss (despite the global trend of higher interest rates).
The GDP figures will prompt speculation about whether an economic recovery could save the Tories at the ballot box – it won’t. A rise in economic optimism will not offset the wider context: lower living standards, crumbling public services and a politically exhausted government. Polls put the Tories as much as 30 points behind Labour – no governing party has ever won from such a position.
A faster economic recovery is, for these reasons, good news for Labour. Higher growth will not hand victory to the Tories but it will ease the opposition’s inheritance. Reeves and Keir Starmer – echoing David Cameron and George Osborne in 2009 – often refer to “the mess” they will have to clean up (and with some justification).
But we should consider the reverse perspective too. “They may just get lucky, the economy might just start growing,” Paul Johnson, the director of the Institute for Fiscal Studies, a man not renowned for his sunny disposition, told me of Labour back in March.
“Economists are useless at forecasting turning points and we may just get a turning point. Growth may go back to its pre-2008 norm, I’m not saying that’s my forecast but it is possible and in that world everything clearly becomes easier, a combination of technological change and the global economy doing better may help.”
For all the obstacles it will face, Labour could inherit an economy in which GDP is rising, living standards are growing and interest rates are falling (aiding both state and household finances). Higher public spending may become less onerous to fund. The Tories will protest that they laid the foundations but the new government – aided by Ms Truss – will take credit.
Even now, Conservatives still lament the economic recovery they bequeathed to Labour in 1997. No one expects the return of that era, but Starmer may yet again prove a lucky general.
Content from our partners
Related
