Improving economic outlook is a political game-changer

In the last few weeks glorious summer weather has been buttressed by a seemingly unending supply of positive financial data. It was revealed that in the second quarter of 2013 the UK economy grew by 0.6 percent, beating previously cautious estimates. Last week, a leading industrial survey suggested that the construction sector is growing at its fastest pace for three years. On Monday another survey then suggested that the dominant services sector expanded between June and July at its quickest rate since December 2006. Tuesday heralded yet more good news: manufacturing output is estimated to be in its best shape since the end of 2010, while the heatwave has provided the retail sector with its fastest July growth for seven years. With business and consumer confidence also on the rise, economic forecasts are being hurriedly revised upwards amidst genuine optimism that the worst of the financial crisis in the UK could be over.

All of this poses a problem for Ed Miliband and the Labour Party. Particularly in times of downturn, elections are largely won and lost according to the state of the economy. Chancellor George Osborne has been steadfast in insisting that his austerity drive will turn around the UK’s financial health; Miliband, meanwhile, has attacked this approach for concentrating too hard on deficit cutting and not hard enough on growth. The same tired back-and-forth exchanges have dominated political debate over the last three years: the Conservatives claim that Labour can’t be trusted on the economy because they engineered the mess in the first place, while Labour claim that the Tory-led government’s policies have made things worse. Both sides fully appreciate that gaining the public’s trust on this issue is pivotal.

The first genuine signs of recovery have tilted the balance in favour of David Cameron’s Conservatives. For the majority of the last few months Labour’s opinion poll lead has hovered around the eight-to-ten point mark, strengthened by the widely-held perception – reinforced by spending cuts – that the Tories are nasty and out-of-touch. The gap, however, is now closing fast. Given that the Conservatives are generally better trusted with the nation’s finances, and Cameron is seen as a stronger and more decisive leader than Miliband, Tory insiders have long been confident of an economic recovery turning around their party situation. This confidence now appears to be coming to fruition.

The timing of improved data is particularly awkward for Miliband given that he has recently been backed into a corner over fiscal policy. Further spending announcements by Osborne a few weeks ago, against a backdrop of the public being more cynical towards welfare than ever before, forced Miliband into admitting that were Labour elected in 2015 he would maintain most of the Coalition’s budget cuts. Given that Miliband in the past has often railed against the austerity drive this is unfortunate. It means that Labour is being forced to change its line of attack at a time when its economic credibility has been badly hit.

With an improvement in the macroeconomic situation not yet translating into a rise in living standards, the obvious alternative for Miliband is to insist that the recovery, should it materialise, is one affecting the privileged few and not the many. Indeed, Labour is now claiming that the average worker will lose £6,600 in real terms during the Coalition’s time in government. However, this has not prevented cracks from appearing in party morale: the reality that Cameron is winning the battle on economic policy has reopened old doubts surrounding Miliband’s leadership. Geraint Davies, Labour MP for Swansea West, used an article in the Independent this week to bemoan the party’s failure “to provide a compelling case as to why Britain would be better off with Labour”. Meanwhile the party’s MP for Leeds East, George Mudie, last week claimed that it was “hesitant and confused” on the big issues.

There has never been any doubt that the economy will dominate the next election. The recent upturn in growth figures, which Osborne has always insisted he should be judged by, is a massive game-changer for the Conservatives. Should the positive news continue they can campaign with a double-pronged message stressing Labour’s past failures and their own recent successes – a potent combination. Labour, meanwhile, would be left to cling to the far weaker tactic of ignoring macroeconomic data and instead questioning the fairness of the recovery. This is open to attack given that Miliband has often berated Osborne for previously weak GDP figures. Just a few months ago the prospect seemed extremely unlikely, but a Conservative government in 2015 is by no means out of the question.

Alex Rickets

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