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Green Shoots of Recovery, or Recession To The Mean?

3 February 2023
| by Field Team

With the Government plotting a route to holding on to power in 2024, news that the coming recession may be better than feared will be a tonic for Rishi Sunak. The Field team explores how the PM can take this win to the bank

In these difficult times, the news has become so bleak that one might be forgiven for wondering if there is ever going to be a positive headline again. The state of the NHS, the cost-of-living crisis and endless strikes are being washed down with a side dish of existential dread from Ukraine, and the occasional smaller scale domestic story like a vicious dog attack.

However, there has also been a glimmer of hope. The Bank of England raised interest rates to 4% yesterday, the latest consequence of an economy struggling with inflation. But the Bank also forecast the looming recession we face is likely to be less severe than previously feared, and that inflation will come down, potentially even halving this year. 

This has been driven by a complex array of factors, the most significant of which is probably falls in wholesale gas prices, but the Chancellor and Prime Minister will be looking to take credit too – the Sunak/Hunt combination is certainly favoured by investors and the market compared to Truss/Kwarteng. The big question for the Government will be whether moderate improvement to our economic situation will be enough for them to turn things around at the next election. 

The relationship between a changing number on an economic graph, and the voting intention of any given member of the electorate, is complex. Obviously a better-than-expected economy won’t do any harm for the Tories, but there is a lag between the point at which something improves economically in theory, and when that improvement is tangibly felt by ordinary people. It is also important to remember that inflation going from 11% to 6%, for instance, would not mean things are getting cheaper, just that things are getting more expensive at a slower rate. ‘Improvement’ at this stage, really just means ‘getting worse more gradually’, unless wages also rise by 6% – and that itself risks holding inflation higher for longer.

The major questions for Sunak and co, even if there is an economic recovery, will include how many minds are already made up at this stage, whether the positive knock on effect of an improving economy will be felt by normal people in time for the ballot box, and if anger at the economy is really just about cost of living and inflation, or also a wider discontent about issues like the treatment of public sector workers, and non payment of tax. The path to victory, as ‘election guru’ Isaac Levido briefed the Cabinet last week, is narrow. But positive news on the economy demonstrates the path, however narrow, does still exist. 

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