Week in Review: About This Rishi Sunak’s economic credibility may soon be dented
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Ronald Reagan once said that the most terrifying words in the English language are: “I’m from the government and I’m here to help.” Yesterday, the British Prime Minister, faced with figures suggesting deepening economic malaise, promised: “I’m totally, 100% in it and everything will be fine.” Reagan, like our prime minister, a Californian, would have found this ominous.
Still, it was Sunak’s best attempt to sound reassuring, drawing on his much-touted economic credentials as he spoke at another ‘PM Connect’ event at the Ikea factory in Kentish. The prime minister’s open-armed, hopeful Rishi regime also had strong economic rationales. In an attempt to break the inflationary spiral of doom informed by angry consumers chasing price spikes — thus fueling inflation even more — Sunak predicted firmness. But while the behavioral effects of an overheated economy may have driven this performance, PM Connect was notably flat. You don’t have to be a critic of “big government” like Reagan to feel skeptical.
Of course, Rishi Sunak Gloomy Wednesday – kicked off by the ONS’s cost of living bulletin – was followed on Thursday by the Bank of England’s Monetary Policy Committee, which raised interest rates to 5%. This was more growth than some had expected, but economists have become accustomed to not being misled by Britain’s sui generis stagflation.
This is the 13th consecutive time the Bank of England’s MPC has raised the bank rate — and inflation has missed forecasts since January, when Sunak first announced his pledge to cut it in half. So the routine is familiar: Britain shirks its inflation target and the Bank of England responds appropriately. Economists now expect the base rate to reach 6 percent by the end of the year. This means that if Sunak eventually hits his arbitrary inflation target, Britain will raise rates – and lead to angrier mortgage holders.
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Britain’s economic woes were expected to be the topic of choice for Keir Starmer at Prime Minister’s Questions this week. Pressed to blame the government for our very British malaise, Sunak replied: “As always, the honorable gentleman is out of touch with the global macroeconomic situation.”
But Sunak’s global blame game belies his highly personalized presentation at Thursday’s PM Connect event. On the one hand, Sunak insists that the crisis in the UK is international, and on the other that he is “100% in it” and can fix it. The report focuses on the broader issue of Sunac’s credibility on economic policy – something he has relied on to supplement an otherwise ill-defined political identity since October.
The Prime Minister is clear that he has a mandate to soothe Britain’s economic ills – a result of the political context following the mini-budget that has showered him in Downing Street. Thus, the economic indicators of inflation, debt and growth rank 1-3 in his “five promises” for government. This raises some profound questions: How does Sunak balance this almost total emphasis on his personal mandate to fix Britain while blaming global factors for our problems? How does this move square with the reality that it is the Bank of England, not Number 10, that holds the policy leavers most linked to inflation?
James Cleverley, the embattled foreign secretary who was handed media duties on Thursday, did not help his boss’s economic speech during his BBC interview about the car crash. Six times called, how the Prime Minister plans to reduce the rise in prices, deftly stumbled, tongue-in-cheek. Citing interest rates first, before being reminded of the Bank of England’s independence, the best the Foreign Secretary could say was: “We are well aware that increasing government borrowing is one of those things that goes around and adds to inflationary pressures.”
Cleverley’s conundrum highlights that there is no clear policy path — other than simply suspending potentially voter-friendly tax breaks — to ease Britain’s inflation problem. (It’s also no secret that the lack of a commitment to tax cuts will embolden Traits who are still in the Conservative Parliamentary Party). In truth, the government’s best strategy in dealing with inflation is to either send its thoughts and prayers directly to Andrew Bailey, or remove him. Of course, despite Sunak’s oath, squeezing inflation out of the system is the Bank of England’s job.
After all, this is the logical core of the problem of economic confidence in Sunak. Halving inflation is the number one pledge in his grand vision for government: it means failure – again Bailey’s brief – essentially hands the next election to Labour. Thus, Sunak finds himself a hostage to his promises. There will be no way to miss a red line like halving inflation by the end of this year.
In truth, it’s no surprise that according to one Survation poll, 40 percent of people believe the government is responsible for reducing inflation, compared to 39 percent who trust the Bank of England. The Prime Minister stood on podiums across the country as he promised to “halve inflation” in block letters. This means that while Sunak sits tight, with no obvious political leverage to draw on, his economic credibility will slowly erode – sacrificed on the altar of a flashy New Year’s election gambit.
So when Rishi Sunak subtly chastises Reagan and says he’s here to help, voters will increasingly attribute the deterioration of their household balance sheets to the prime minister’s inaction. Even if the Prime Minister turns against the Bank of England, the voters will already find the culprits.
All in all, Sunak will pay a high political price for his inflation-oriented election campaign. And I expect we’ll see a lot less of the Prime Minister’s infamous five promises as Britain’s economic malaise deepens.
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