I’m now back from the recess and checking up on all the news I missed – the most striking of which seems to be how the economic stars are aligning for a Tory second term. Three things jump out:-
1. The downturn has only just begun: The political soap opera is so compelling that it’s easy to overlook that the property market is now falling faster than at any point in the 1990s. Commercial property down 16 percent and residential down 11 percent, on an annualised basis. As Britain has one of the closest links between house prices and consumer spending, you can’t say this will be isolated to the property sector. The projections for inflation are being revised upwards all the time. The CPI index, which Brown has successfully taught the media to call “inflation”, is 3 percent now and heading for 4 percent by Christmas – with food price inflation in double digits. Think how well that will go down.
2. It won’t revive in time for 2010: Many Labour types argue their party’s misfortune is directly linked to the economy and that when it rebounds, so will Labour’s polls. That didn’t work for John Major, and won’t have a chance to work for Brown. By 2009 unemployment (on the Treasury’s measure) will rise by 18 percent to 1m, property prices off about 20 percent spreading negative equity everywhere and repossessions up by about 80,000.
3. After the election, things will recover: Using HM Treasury’s own consensus forecasts to 2012 things bottom out in 2010: inflation gets under control, economic growth picks up and unemployment starts to subside. James Purnell’s rolllout of welfare reform – already making serious impact in places like Glasgow – may start to take on critical mass and make a nationwide impact as more back-to-work programmes are privatised. With all this in place by 2010, then by 2014 things will look and feel a lot better to voters whose memory of the Labour years post-summer 07 will be of inflation, repossession and unemployment.
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