Can lower inflation stem UK Tory collapse?
2% inflation first positive headline for Conservatives in error-filled election campaign
Source: www.bbc.com/news/uk-politics
Hot takes
The British Conservatives have fallen so low that Nigel Farage’s Reform UK Party may get more votes in the July 4th election.
The British Conservatives have fallen so low that the Liberal Democrats may win more seats in the July 4th election.
The British Conservatives have fallen so low that PM Sunak may lose his own seat.
The British Conservatives have fallen so low that Reform UK leader Nigel Farage may take over as Conservative leader after July 4th.
Inflation falling to a 2% annual rate is the best news for the British Conservatives in the election campaign so far. The Tories have one last chance to use good inflation news to avert utter disaster.
Better US inflation news is on the way. If US inflation falls below 3%, President Biden may get an “economy, stupid” polling boost.
A rare day of good news for PM Sunak and his Tories
With the July 4th general election looming, Britain’s governing Conservative Party (aka the Tories) finally enjoyed positive headlines:
“Inflation falls to Bank of England’s 2pc target in boost for Sunak: Prime Minister claims victory” (The Telegraph)
“Rishi Sunak hails ‘great news’ as UK inflation rate is ‘back to normal’ and lower than France, Germany & US” (The Sun)
“UK inflation hits Bank of England’s 2% target in May: Rishi Sunak hails ‘very good news’ (Financial Times)
“UK inflation falls back to official 2% target as food prices rise at slowest rate since 2021” (The Guardian)
“Inflation falls to lowest level in almost three years” (bbc.com)
“UK inflation drops to 2% target for first time since 2021” (Reuters)
Why did Sunak call an early election he was sure to lose?
British Prime Minister (PM) Rishi Sunak brought the election forward by 6 months despite knowing that his Conservative Party was 20 percentage points behind in the polls with little chance to win. Sunak had two reasons for hoping that his Tories would at least do better than expected in an early election.
Good inflation news during a summer campaign might restore the Tories’ reputation for economic competence. An inflation uptick later this year would have put Sunak back in the voters’ bad books.
An early election call might prevent popular populist Nigel Farage from taking over leadership of the Reform UK Party and appealing to anti-immigration Tory voters who prefer Farage to Sunak.
Anyone with a smartphone calculator could have figured out that good inflation news was on the way in the UK. High month-over-month inflation in the spring of 2023 would drop out of the annual inflation calculation and would almost certainly be replaced by much lower monthly rates for spring 2024.
The same simple arithmetic tells us that the latest UK inflation news is probably too good to last. As very low monthly inflation rates over the last half of 2023 drop out of the annual calculation, headline inflation will likely tick back up.
When Sunak boasted about lower inflation in a televised debate, Opposition Labour leader Keir Starmer replied:
“why has he [the PM] called it [the election] now? He’s called it now because he knows … inflation is going to go back up … in the autumn. That’s what he’s not telling you.”
The best laid schemes of mice and men
Beyond today’s inflation report, nothing has gone right in Sunak’s campaign. On June 3, Reform UK Party leader Richard Tice stepped down in favor of Farage, the hero of Britain’s anti-Europe and anti-immigration movement. Among voters who would still consider the Conservatives, Farage is way more popular than Prime Minister Sunak.
Sunak made matters worse with a succession of campaign gaffes and awkward interviews. As a result, Conservative Party support has dropped a few percentage points in voter intention polls since Sunak sprung his surprise election call. In the average of credible polls compiled at bbc.com, Tory support is down to 21%. If the Conservatives remain at this level on election day, the UK’s “natural party of government” will suffer by far the worst defeat in its 200-year history.
Why isn’t Labour even farther ahead?
Despite Conservative errors, the 20-point gap between the certain-to-win Labour Party and the Tories has not budged. Labour’s support has also dropped slightly during the campaign to 41%. Three possible explanations:
As the frontrunner, Labour’s risk-averse campaign is uninspiring.
Conservative attacks have dented Labour support. But, few voters will switch from Labour to the hated Tories. Instead, some have moved to Reform UK and the Liberal Democrats.
As more voters see that the widely disliked Tories can’t win, some feel freer to vote with their hearts for smaller parties rather than with their heads for Labour.
“Upbeat inflation news too little, too late for Sunak”?
Guardian columnist Larry Elliott says YES. Elliott is certainly correct in the sense that Keir Starmer will be the Prime Minister after the July 4th election, not Rishi Sunak.
I believe in James Carville’s “economy, stupid” theory that it’s the economy that determines most election outcomes. Elliott is undoubtedly correct that British voters are still angry at Sunak’s Conservative government for “the squeeze on their living standards caused by the highest inflation in four decades” in 2022.
That being said, Sunak has the next 3 weeks to use the recent good inflation news to limit the scale of the disaster awaiting his Tory party on July 4th. On election night, we will learn the answers to the following questions:
Can the Tories do a bit better in actual votes than their current 21% polling level?
Can Sunak stymie the Farage surge or will the Reform UK Party come even closer to the Tory vote than the current 5-point gap?
Can the Liberal Democrats (Lib Dems) rise enough to win more seats than the Tories? Lib Dems are concentrated in the south of England, while Tory and Reform UK voters are spread more evenly across the UK.
Will Prime Minister Sunak win his own seat in the House of Commons?
Will the Conservatives win so few seats that Sunak’s Tory successor must accept Farage’s offer of a merger with Reform UK, thereby paving the way for Farage to take over as Tory leader?
In Scotland, will the Labour Party finish ahead of the pro-independence Scottish National Party for the first time since 2010?
What does the UK election say about Biden v. Trump?
Sunak’s boast that 2% UK inflation is lower than US inflation may be used against President Biden over the next few weeks. UK inflation is indeed lower than the US inflation rate of 3.3%.
But, the true gap is not as large as it looks. The UK’s headline inflation rate of 2% does not include owner-occupied housing, unlike the US rate. The Office of National Statistics includes owned homes in the UK’s CPIH alternative measure of inflation. At 2.8%, CPIH is closer to the US headline inflation rate.
You can be sure that, if the UK’s headline inflation rate of 2% is brandished against Biden’s 3.3% inflation rate, almost no one will pick up on the difference in the way inflation is calculated in the UK and US.
President Biden can also expect better news on the inflation front. The Cleveland Fed’s nowcast shows annual inflation falling from 3.3% to 3.1% in the next set of US Consumer Price Index (CPI) numbers to be released on July 11th.
3.3% to 3.1% may be too small to move Biden’s polling needle. But, there is now a greater chance that inflation will fall below 3% before election day. If voters are prone to left-digit bias when hearing economic news, a drop in inflation from 3.1% to 2.9% may have a much bigger impact on the election than a decline from 3.3% to 3.1%.
If Prime Minister Sunak can use his good inflation news to spark a modest Tory revival, can President Biden do the same later this year to close his much smaller polling gap in an election that can still be won?