- Inflation jumps to 2.9%, its highest since the middle of 2013.
- Rising inflation means incomes continue to be squeezed.
- The Conservatives are unlikely to want an election against a background of falling real wages.
- Downing Street Chief of Staff says austerity was the driver of big swings from Tories to Labour.
LONDON — The latest inflation data from the Office for National Statistics released on Tuesday provides a perfect example of why the Conservative Party is so keen to avoid a previously mooted second general election in 2017.
Having called an election to increase her majority and her personal mandate heading into Brexit talks, May’s plan backfired spectacularly last week when the party failed to win a majority at all, finishing the vote with 318 seats — 8 short of a majority.
There are several reasons for the Conservatives’ election disappointment, chief among them a surge from Labour under Jeremy Corbyn and a muddled, underwhelming campaign from the Tories, labelled by former Chancellor George Osborne as a “total disaster” and “one of the worst manifestos in history by a governing party.”
That failure to win a majority sparked speculation that the UK could be forced into a second general election. That’s because — as my colleague Adam Payne explained earlier on Tuesday — the government formed by the Conservative Party in the coming weeks will be a minority, likely backed by a confidence and supply deal with the Northern Irish Democratic Unionist Party.
May talked during her campaign about creating a “strong and stable” platform for negotiating Brexit. A minority government propped up by the DUP would be neither of those things.
As Payne notes: “British history tells us that this sort of government is unstable and could collapse within months.”
However, senior figures in the Conservative Party are incredibly reticent to enter into a new election campaign, essentially because they think if another vote were to be held soon the party would probably lose, and Corbyn would sweep into Number 10. The first opinion poll after the election, released by Survation on Sunday, showed Labour with a five-point lead over the Tories.
There are numerous reasons for the Conservatives’ slide in popularity, including Theresa May’s low approval rating after her frankly wooden campaign. However, one of the biggest drivers of the Tory reticence is the fact that Brits are undergoing the start of a huge squeeze on their living standards, for which the incumbent government will understandably shoulder much of the blame from the general public.
That squeeze is typified by Tuesday’s inflation numbers. Headline inflation hit 2.9% in May, its highest level since 2013, and close to six times higher than the month before Britain voted to leave the EU. Inflation may be surging, but at the same time, wages are not rising at any great speed. Wage growth, at the most recent reading, was just 2.4% in the three months to the end of March.
This means that the amount people have to spend on everyday things like groceries and clothing is growing quicker than the amount people are earning, squeezing real incomes.
As Bank of England Governor Mark Carney succinctly put it in May: “The wages people are getting are not going to be sufficient to compensate for the rises in consumer prices, prices in the shop.
“So this is going to be a more challenging time for British households over the course of this year, real income growth — to use our terminology — will be negative. To use theirs [layman’s] wages won’t keep up with prices for the goods and services they consume.”
Understandably, the average Brit is not likely to be happy about their income dwindling, especially in the aftermath of an overall economic boom in the country.
For several years under the government of David Cameron, Britain was, in GDP terms at least, the fastest growing major economy in the world, but that prosperity didn’t necessarily filter through to the pocket of the average person in the UK.
There is evidence, at least anecdotally, that this lack of prosperity growth was one of the big drivers of voters moving from the Tories to Labour last week.
In an interview with the BBC released on Monday, Theresa May’s new chief of staff Gavin Barwell, who lost his seat to Labour on Thursday, nailed the problem in one story.
“There’s a conversation I particularly remember with a teacher who had voted for me in 2010 and 2015 and said ‘you know I understand the need for a pay freeze for a few years to deal with the deficit but you’re now asking for that to go on potentially for 10 or 11 years and that’s too much’.
“You have to have something to say to people, who understand the need for tough decisions but nonetheless need to feel that: ‘If I vote for you, my quality of life going to improve over the next five or 10 years’.”
With inflation set to rise even further as 2017 continues, and wages not forecast to increase substantially, the incomes squeeze could get even worse, spreading further anger among the populace and decreasing the Tories’ electability even further.
All considered, don’t expect a general election any time soon.
This column does not necessarily reflect the opinion of Business Insider.
Business Insider Emails & Alerts
Site highlights each day to your inbox.