The ONS has released its latest figures on the impact of the crisis this morning, with around 35 per cent of adults reporting it was difficult to afford their rent or mortgage payments. A report published yesterday by accountants Grant Thornton predicts that living standards will continue to decline for another ten months, with households absorbing a total £65bn hit to their spending power before things bottom out in May 2024. Were the next election to be held in the spring, as is traditional, it would take place at the British consumer’s lowest ebb.
This is the main reason we expect Sunak to hold out until late 2024 (the latest possible date is 28 January 2025) to fight the next election, but it would take a miracle for the British consumer to be at a much higher ebb by then. Panmure Gordon’s analysis suggests that the housing market has only absorbed a third of the impact of rising interest rates so far, and this week’s financial stability report from the Bank of England acknowledges that “market expectations are for Bank Rate to average around 5.5 per cent over the next three years”. Shocks to mortgage holders will continue well into the next parliament, with hundreds of thousands of households facing a jump of at least £500 a month by the end of 2026.
The UK has so far avoided a recession (defined as GDP shrinking for two consecutive quarters), but this may not last: employment data released this morning by Reed Recruitment and Bloomberg shows job openings fell more than 24 per cent in the three months to June compared to the same period an earlier year, suggesting to the Reed chairman, James Reed, that “a recession may well be imminent”.
For many voters the line between a shrinking and growing economy feels like a meaningless technical distinction, because the decline in living standards is worse than during actual recessions of the recent past. That could change, however. That said, one fact worth remembering about the UK economy is that against the country’s 6.5 million (at last count) mortgage holders there are 9.3 million people who own their home outright. A significant – mostly older – chunk of the country is still to a great extent insulated from the pain of rate hikes, or may actually benefit from them (high interest rates also push up the annuity rates on pensions), and no longer has any cause to worry about the jobs market. Whenever the next election is, we should expect a result sharply divided between work and wealth.
[See also: Tax wealth and reward work]