UK Elections

Recent economic improvement in the UK has driven the announcement of a ‘snap-election’ on July 4th. The uncertainty of the UK economy in the past few years has gradually exhausted the popularity of the conservative party. The announcement of an election in just 2 months shows that the Conservatives are attempting to capitalize on progress in the last quarter, including GDP and inflation. However, they haven’t made as much progress in other areas, namely unemployment and job vacancies. These are what Labour will be doubling down on during their campaign.

Inflation

Firstly, inflation rates, peaking at 11% in 2022, dropped to 3.2% in March, and now 2.3% as of May. This was all under Rishi Sunak’s tenure. While this is still slightly above the Bank of England’s target of 2%, they expect rates to drop in the coming months. Considering Sunak’s pledge in 2022 to ‘half inflation’, one could highlight this improvement during the UK elections. 

According to the Bank of England’s Monetary Policy Report- May 2024, petrol and utility prices are growing at a slower rate than before. Unleaded petrol is currently at 148.83p per litre, dropping from 155.94p per litre in October 2023. The BoE said ‘We can’t rule out more global shocks that keep inflation high though.’ 

Interest Rate Cuts?

A general election in July all but confirms that interest rate cuts won’t be announced until August, once the new government has been decided, even if inflation has reduced. This is the case for two reasons. 1. BoE rate cuts to around 5% after six straight months of holding at 5.25% will be a well-received fiscal decision and may overshadow economic progress attributed to the Torys.

2. Interest rate cuts shortly before an election may be viewed as an unfair political influence on the Bank of England. The Conservatives want the BoE to remain a separate decision-making body to preserve their perceived integrity. 

GDP

GDP has also seen some improvement, with a 0.2% increase in the first quarter of 2024, bouncing back from a 0.3% drop in the last quarter of 2023. While it hasn’t fully recovered from the drop, the path of progression has been set. The overall national output was 0.6% higher than the last three months of 2023, according to the Guardian. Chief UK consultant for Capital Economics, Paul Dales, released an estimate that the overall quarterly growth rate would increase from 0.2% to 0.6%.

Unemployment and Job Vacancies

On the other hand, an improvement in unemployment rates is yet to come, a national problem only seconded by inflation. The Labour market has seen large drops in unemployment rates since the fourth quarter of 2023. The Office for National Statistics (ONS) released data showing that between October 2023 and March 2024, unemployment rates rose by 166,000, driving the total jobless proportion of the UK by 0.5%. The jobless rate is now at 5.3%- approximately 1.49 million.

This is partially due to a drop in job vacancies, down by 26,000 by April. Job vacancies are now at 898,000. The UK job market has been cooling down over the past year after a period of high demand for workers post-pandemic. Inflationary pressures have led to high interest rates, because increased borrowing costs reduce consumer spending, slowing price growth. This also applies to businesses, who are less likely to roll out hiring plans just yet. Due to this, the Conservatives argue that because they are tackling inflation, interest rate cuts in August will reduce unemployment.

Another, potentially less relevant but still impactful cause of unemployment is the UK’s ‘sick-note culture’. This is a problem which Rishi Sunak has vowed to tackle.

Despite the rise in unemployment, annual earnings remained at a sustainable rate of 5.9%.

The entire country holds their breath in the wake of the upcoming UK elections, more likely than ever to topple the 14-year reign of the Conservatives. Recent economic data, and data yet to come in June, may serve as a flicker of hope amidst a gloomy tenure since COVID-19.

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Cover Image From Institute for Government