Why is positive economic news not pleasing the public or government?

Why is everyone so gloomy? The economy is doing much better than expected but you wouldn’t know it if you listened to the new government or if you asked your neighbour who works at a foodbank. What is driving this divergence in economic indicators and people’s perceptions? Some of this is political game playing, but a lot of it is driven by very real structural factors.

The new chancellor should be buoyed by some of the latest economic indicators. Wages remain strong, far outpacing inflation, giving workers a long overdue increase in their standard of living, and inflation remains – for the time being – under control. While some issues around inactivity and the growth of part time work remain persistent, the labour market on the whole looks in much better shape than it did just a few months ago with outstanding vacancies being filled.

Whereas many were debating whether GDP would achieve 1 per cent annual growth this year, it has already grown by 1.3 per cent since December last year and UK manufacturing is currently growing faster than in other developed economies.

Does this mean the economic inheritance of the new government is good? Not necessarily. Most of the public are pessimistic about the economic outlook despite these good news stories. Consumer confidence may be improving, but it remains below pre-pandemic levels. It’s likely that this pessimism will remain given the Prime Minister’s gloomy speech last month about the economic picture.

Clearly, the positive economic news is pleasing neither the public nor the government. But why not?

The answer is these economic indicators - though important - are cyclical, influenced by short term trends and often prone to revisions. What isn’t as noisy however, are more ‘human’ indicators of economic performance like the state of our public services or how people are managing through the cost-of-living crisis. It would be difficult to look at the NHS or the state of our local councils or rising poverty and not see where this pessimism is coming from.

How people feel about the economy will be influenced a lot by the state of the public services they receive. After all, for many, this is the time they interact with what they interpret to be the economy the most. Put it this way, people won’t care about GDP growing if they can’t get medical treatment because the NHS couldn’t afford to hire enough doctors or if their bins are collected less frequently because their council is trying to save money. By this metric the economy is doing pretty badly, given news stories like the NHS needing an extra £38 billion per year and many local authorities spending more in debt costs than they have in income.

Put this against the enduring effect of the cost-of-living crisis, with prices 20 per cent higher than they were three years ago, and you see how it’s difficult to have much optimism. Energy arrears continue to rise standing at over double what they were in 2021 and 60% of low-income families are reporting going without essentials.

So, is it any wonder that the positive economic news is not inspiring much confidence at the moment? Clearly not. For the chancellor, how people feel about the economy is what matters, and right now, people are understandably pretty gloomy.