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The good news for the U.K. government is the economy is doing slightly better than expected. The bad news is it’s surely going to take more than that to turn its fortunes around in time for the general election.
After flirting with recession for the best part of 18 months since Russia’s invasion of Ukraine, it looks increasingly likely that will be avoided. On Friday, gross domestic product, measuring the value of goods and services in the economy, posted its strongest growth in over a year for the three months to June, rising 0.5 percent.
A particularly strong rebound in the country’s struggling car industry in June gave fresh evidence of a return to some kind of normality in manufacturing, after the combined shocks of the war and the earlier disruption to supply chains from the pandemic.
In theory, that should support the chances of the ruling Conservatives, giving the party time to repair a reputation for economic competence that has been badly dented in the last couple of years.
“We’re laying the foundations for a strong economy, and once we get inflation down, we’ll see the fruits of that,” Chancellor of the Exchequer Jeremy Hunt said via social media in response to the numbers.
The government must call an election for January 24, 2025 though it’s widely expected to be in the fall of 2024.
Statistical quirks
But analysts warned against over-interpreting the data, which was at odds with a stream of gloomy surveys of businesses and consumers over the last couple of months. The first readings for GDP, which are provided by the U.K.’s Office for National Statistics, are often revised as more complete data comes in. That’s become even more pronounced since the pandemic.
The ONS’s numbers for manufacturing and construction “don’t even fit vaguely with the survey data,” said Marc Ostwald, chief economist with ADM ISI. This raises suspicions the “pleasant surprise” was due to statistical quirks rather than an underlying improvement in the economy — and certainly not solid enough by itself to translate into political support for those in power.
“I don’t think growth itself really matters to the general public at all,” Ostwald said. “It’s all about the cost-of-living pressures and the sleaze. We’re back where we were with what John Major went through.”
Major’s premiership, which followed more than a decade of rule by Margaret Thatcher, was characterized by an economic crisis, followed by a fin-de-règne breakdown of discipline and unity in the Conservative Party that led to a 13-year exile from power.
For the average voter, the cost-of-living crisis, now well into its second year, appears to be the overriding concern. Food inflation has been above 10 percent for a full year now, according to the British Retail Consortium’s shop price index.
“Everything seems to have gone up, whether it’s things that cost £10 or £2,” said Mark Ventham, an aviation logistics manager based in Marlow-on-Thames, 40 miles upstream from Parliament’s Westminster base. “The general public seems to be paying back for things like Covid.”
It’s possible there’s a silver lining for the government around the corner. This year’s drop in energy prices means July’s data may show earnings growing faster than prices for the first time in nearly two years. Still, the Tories trail Labour by 19 points, according to POLITICO’s poll of polls. Even a return to strong real incomes growth — which the U.K. hasn’t seen since the global financial crisis, ADM ISI’s Ostwald points out — will struggle to close such a gap in such a short timeframe, even in affluent Tory heartlands such as Marlow.
“I don’t trust politicians at all, based on what’s happened over the last couple of years with [former Prime Minister] Boris Johnson, Matt Hancock [the health secretary during the Covid pandemic] and people like that,” said Ventham. “I just don’t have any confidence.”
