Good economic news is finally on the horizon
Amid the doom and gloom of projections of anaemic growth and persistent inflation is the beginning of some green shoots of progress towards economic normality. The economy may have experienced a recession in the second half of 2023 but it is likely to steer clear of a meaningful one. Some households are starting to see the benefits of higher interest rates on their savings, and the fallout from rising mortgage rates appearing to be on the downward trajectory.
National insurance tax cuts have been implemented, saving a good chunk of people a not insufficient sum of money. Our wages are finally growing faster than inflation. Energy prices are much lower than they were in 2022 and food prices have stopped growing. Inflation itself is coming in lower than expected, and we can finally report a good news forecast that it will be back to the bank of England’s two per cent target around April this year.
I sense you’re reading this happily, grateful for some good news, but the people who will be happiest with this news is CCHQ and Number 10, who will hope that by the time of the election we’re all going to think the world is back to normal. Forgive me if this plot twist was apparent from the start, but that will likely not be the case, for one simple reason: do you feel financially secure?
Odds are you answered no, and you wouldn’t be alone. In the US, 60 per cent of citizens feel that they’re already in a recession when they’re most certainly not. In fact, by all important measures the US economy is a phenomenal example of economic resilience, with much lower inflation and decent growth.
Before you come for me with that ‘GDP doesn’t matter’ humdinger, there is a more human reason for this disconnect. Life not getting as bad as it has in other countries isn’t exactly going to be met with jubilant celebrations. In fact, of all economic indicators, a fall in real incomes is going to be the most immediately noticed.
Given the UK is performing much worse than the US, it is entirely reasonable to expect similar levels of economic discontent.
All of the above good news stories be categorised as either a) life is less bad than it was last year or b) life has stopped getting worse. Do you see this converting into people running to the polls to vote for the 14-year incumbent party? I don’t. When was the last time an incumbent party was re-elected after its voters were made worse off than before they took office? British people aren’t known for such generosity.
Couple this with the fact that the last cost-of-living payment has just been made, so by definition those in receipt of such support will be worse off this year without them. Couple that with the ‘stealth tax’, whereby freezing tax thresholds at pre-inflation levels pulls people into a higher tax bracket from attempting to offset inflation with wage rises. Couple that with those who still need to remortgage this year. Put all that together and you have a similarly sobering story which I do not think will result in the feeling that the economy is doing well.
The economy is not doing as badly as before, but to all intents and purposes, it will feel rubbish enough to the people that matter.
Max Mosley is a Senior Economist in the Macroeconomic research team at the National Institute of Economic and Social Research.
