Rishi Sunak

Falling inflation, the prospect of interest rate cuts and signs that Britain’s economy is gathering some pace sound like an electoral godsend for struggling Prime Minister Rishi Sunak, but history suggests it will all make little difference.

Last week the Bank of England forecast that British inflation – until recently the highest among the world’s rich economies ¬– would fall to its 2% target by the middle of 2024, much sooner than it previously thought. The BoE also signalled that borrowing costs might start to fall. If the central bank is correct, it would help Sunak, who has sought to take credit for inflation dropping as he prepares for an election expected in October or November.

Business surveys – including one on Monday that suggested Britain’s economy is growing faster than its big European neighbours – also point to a brightening economic outlook.

Data on Monday suggested Britain’s jobless rate fell to 3.9% in the three months to November. A 10% increase in the minimum wage and a cut in home energy tariffs in April could also help many households, according to a Reuters report. The problem for Sunak is that history shows even the brightest economic news would probably not dent the enormous opinion poll lead held by the opposition Labour Party – currently around 20 percentage points.

While the Treasury boasts that Britain has ranked top for growth since 2010 among the five largest European economies, it has struggled more recently.

Since late 2019 – just before the COVID-19 pandemic – Britain has lagged Spain, Italy and France, with only Germany faring worse, leaving Britons on course for their first fall in living standards over a parliamentary term since World War Two. Sunak’s Conservatives are hoping for a repeat of John Major’s surprise election win of 1992 which came after a bout of double-digit inflation, using the old retail price index measure, and a severe 1990-91 recession.

Major persuaded the electorate that it was better not to risk the economic recovery by switching governments, and Sunak is echoing that strategy three decades later.

The Labour Party led by Keir Starmer is proposing little significant change in economic policy, however, making it harder for Sunak to alarm voters. Through 1996 and early 1997, British economic growth averaged almost 1% per cent per quarter – an unthinkably fast pace now – while inflation under the consumer prices index measure had fallen below 2% by the time of the election. But Major’s Conservatives suffered their heaviest defeat since the early 20th century. In his resignation speech, Major said Labour’s inheritance was “the most benevolent set of economic statistics of any incoming government since before the First World War”.

Major in 1997 and Wilson in 1970 had both presided over era-defining economic crises –something the Conservatives fear will haunt them too in 2024.

September 1992’s Black Wednesday saw Britain crash out of the European Exchange Rate Mechanism after failing to defend the pound against investors betting against it. Wilson’s government devalued sterling in November 1967, overwhelmed by an earlier bout of speculation. Both events ultimately benefited Britain’s economy, but their unfolding left voters with a sense of economic chaos. A more recent crisis, the “mini-budget” of September 2022, during Liz Truss’s brief premiership, saw mortgage costs soar when an attempt to boost the economy with uncosted tax cuts at a time of rising inflation triggered bond market turmoil. Truss’s replacement Sunak has sought to portray his government as a force for stability and fiscal conservatism, but opinion polls show the Conservative Party’s ratings for economic competence have not recovered.

Even the prospect of tax cuts in Hunt’s March 6 budget – echoing cuts ahead of the 1997 election – on top of the lower social security contributions he unveiled in November, is unlikely to fix the damage.