Prime Minister Rishi Sunak is pinning his re-election hopes on the positive effects of the economic recovery and lower inflation. Photo: Peter Nicholls/Getty Images
Growth is at a “gangster pace”. Salaries are rising. And inflation is back under control.
Rishi Sunak knows a good economic performance when he sees one and has seized on signs of recovery to launch his election campaign.
The Prime Minister is particularly proud of the victory over inflation. It entered the top ten at the peak of the cost of living crisis, shortly before inflation peaked at over 11%.
Sunak promised to halve this in 2023 and, of course, inflation fell. The latest data shows price growth at 2.3% in April, effectively back on track with the Bank of England's 2% target for the first time in almost three years.
What's more, average wages are rising faster than prices as the economy recovers from the recession. Britain is now growing at the fastest rate among the G7 countries.
Grant Fitzner, chief economist at the Office for National Statistics (ONS), used the word “gangsters” to describe productivity.
The typical family gets better off as wages rise. , price pressures are easing and the benefits of two National Insurance rate cuts are hitting people's wages. Retirees are also doing well after being protected from the cost of living crisis by the triple lock.
So why isn't everyone doing better?
The reason is that prices are still rising and mortgage costs remain much higher than they were before the inflation crisis began. Although wages are finally rising faster than prices, there is still a lot of catching up to do and most of us are still worse off than we were a few years ago.
The government's official inflation target The Bank of England will have to maintain consumer price growth at 2% per year. This is intended to provide sufficient impetus for economic growth and prevent stagnation.
In normal times, wages should roughly keep pace with inflation, ensuring a stable standard of living.
But after a period of time, despite the breakneck rise in prices, costs are still much higher than a few years ago, even though the inflation.
In August 2021, the typical worker earned £544 a week in regular pay, excluding bonuses.
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Today they earn £637, which 17% more.
You might think that this is not so bad, but prices rose faster. The Consumer Price Index (CPI) has risen more than 19% since August 2021.
As a result, real incomes in March, adjusted for inflation and cost of living, were 1.8% lower than in August 2021 . , according to the ONS.
So workers are £9 a week worse off than they were three years ago: their purchasing power has fallen even though their monthly wages have risen.
Tax also needs to be taken into account. Here the effects were mixed, depending on your earnings. This is due to a variety of changes: thresholds have been frozen (a classic hidden tax) and the overall employee National Insurance rate has been reduced.
The poorest 40% and the richest 10% pay. There will be more taxes this year than in 2021, according to the Institute for Fiscal Studies. In some cases, people pay up to £500 more.
The remaining 50% pay less tax. Those earning around £50,000 a year are the biggest beneficiaries of recent policy changes, which have saved them around £1,000 compared to 2021.
Pensioners also feel good. They have benefited significantly from the triple lock, which increases the state pension by the maximum inflation, average earnings or 2.5% every April. This has essentially protected them from the cost of living crisis, with the state pension rising by more than 23% since August 2021, outpacing the 19% rise in prices over the same period.
Another reason why some people may not feel better because individual prices, which people pay a lot of attention to, remain high.
Gas bills are still two-thirds higher than three years ago, and electricity bills are still up 42%.It's a similar story for petrol, with a liter now costing an average of £1.57, down from a peak of £1.99, but still 20p above the £1.37 typically seen in August 2021.
In supermarket aisles, some items are now cheaper than a year ago.
Two pints of semi-skimmed milk cost £1.24, down 6p on last year. A standard 250g block of butter is selling for £2.16, down 18p on April last year. A jar of jam became cheaper by 4pk, and the price of a pack of frozen fish fingers fell by 6pk.
But average food prices are still almost 30% higher than in August 2021.
p>The jump in prices for some individual items seems particularly strange. For example, the price of olive oil has more than doubled. A typical bottle now costs £8.40, according to the ONS. A kilogram of sugar costs £1.19, up 70% in three years.
The headline inflation figure Sunak pointed to is also somewhat narrow. The CPI only tracks groceries, but other costs have also risen.
Placement is most important. Average mortgage payments have risen from £714 a month in August 2021 to £911, an increase of more than a quarter.
Rents are also rising rapidly, with typical tenant payments rising by almost a fifth to The average is £1,254 a month, according to the ONS.
A rate cut from the Bank of England is needed to give hope to housing costs ahead of the election. This will lead to lower mortgage rates.
Since the Old Lady of Threadneedle Street gained operational independence in 1997, decisions on borrowing costs have been out of government control precisely because politically motivated rate cuts before an election were seen as dangerous.
Now that inflation has fallen close to the Bank's 2% target, and with further declines expected, the June policy meeting may seem like the ideal time to cut the policy rate from a 16-year high of 5.25%.
This will certainly strengthen the Prime Minister's position that the crisis is over and things are moving in the right direction.
However, there is no guarantee that the Bank's policymakers, led by Governor Andrew Bailey, will reduce borrowing costs. just in time for the elections.
They want domestic inflation pressures back under control, and while overall rate levels are encouraging, there are still worrying signs beneath the surface.
Of particular concern to tariff planners is the inflation of prices for services, which strongly depends on wages. The figure remains at 5.9%, which is dangerously high.
Officials may also be wary of appearing political. Since the Bank became independent in 1997, it has never changed interest rates ahead of a general election.
Sunak argues to the public that this is all a small matter. His economic plan is working, the dividends are in place.
“Inflation is back to normal,” the Prime Minister said on the steps of Downing Street. “This means pressure on prices will ease and mortgage rates will fall. This is proof that the plan and priorities I laid out are working.”
Bill Clinton's election guru James Carville summed up their successful campaign strategy as: “Economic stupidity.” Sunak is fighting a similar fight and hopes for similar results.
However, with the benefits of economic recovery and lower inflation not yet fully evident in people's pockets, the Prime Minister's strategy is risky.
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