Economic menus have rarely sounded so bland. A mild recession in 2023, followed by a fall in inflation and, for dessert, a return to modest growth.
The current consensus view among City economists of next year’s overarching economic outlook would appear to be fairly benign, compared with the Armageddon promised by the Truss/Kwarteng fiasco of a few months ago. They forecast an absence of job losses, except at the margins of the retail industry, hospitality and maybe construction, though worker shortages would mean that even in these sectors, most people looking for a job would find one.
Consumer spending is expected to continue rising even as gas prices bite, mainly because low unemployment means those in work will be able to afford the interest on their loans, even if they struggle to pay down the balance.
Economists at investment manager Investec say inflation in the UK may already have peaked. And while the Bank of England will continue to push up borrowing costs into the new year, heaping more pain on mortgage holders and renters, interest rates could start to come down as early as next summer.
The rest of the industrialised world is expected to follow a similar path. The exception is China, which, after a year blighted by persistent Covid-19 lockdowns, is predicted to bounce back strongly in 2023.
“We are looking for global growth of 2.2% in 2023, down from 3.0% in 2022,” the firm’s analysts said, adding: “[Government] support to households and firms to deal with energy prices will limit the downturns, and the financial system looks in better shape than in deeper and more prolonged recessions.”
Against this backdrop, Tory MPs might assume there is a chance of going into the next election with a growing economy, low inflation and a relatively healthy jobs market. Those same Tories could be forgiven for believing 2024 would be 1992 all over again – a win against all the odds.
However, Sajid Javid and Chloe Smith, two of the growing number of Tory MPs to tell their constituency parties they will stand down at the next election, obviously think the game is up. Labour and Lib Dem MPs might agree, believing the implosion of Toryism after 12 years in power is in some way inevitable.
The pollster YouGov says Keir Starmer’s lead over Rishi Sunak has increased to five points when asked which party leader Britons would make the best prime minister – 30% to 25% – though the ratings of both slipped slightly from a week earlier. Starmer has led all his Conservative rivals since January. An Ipsos Mori political monitor in October showed Labour taking the lead as the party with the best policies for managing the economy for the first time since September 2007.
Brexit failures arrive as regularly as London Underground trains, while six years of economic stagnation since 2016, born mostly of a lack of business and government investment, mean the country’s infrastructure is creaking.
If Sunak presides over at least another year of falling living standards, voters may not forgive him. Polls have often overestimated demands for change, but it may be different when Britain’s older voters wake up to the legacy of laissez-faire economics. The over-55s have proved to be a staunchly conservative bloc in the main: George Osborne, David Cameron’s chief strategist as well as his chancellor, understood this only too well, sweetening older voters with tax benefits on savings, pensions and property to keep them onside.
Recent polling has shown many people nearing retirement are tiring of the focus on rising property prices as a substitute for general wellbeing. They can see their children and grandchildren struggling to find a home that matches their income without a huge deposit, wherever they live in the country.
Before the Covid-19 pandemic, YouGov data showed only 38% of Britons thought a drop in house prices would be positive. Now the figure is 50%. Among those aged between 50 and 64, 44% want to see house prices fall.
It could mean that longstanding intergenerational divides over property and wealth are beginning to close. If better-off older people step outside their cocoon of property and lavish pensions and see their children suffering, Tory plans to muddle through the next two years will come unstuck.
Chester, where Labour scored a significant byelection victory last Thursday, is a classic example of a former Tory jewel fallen on hard times, with closed shops and stretched public services. The economy might look and feel better in 2024, but the damage from eight years of neglect should make itself felt at the polls.
