UK economy suffers 'slow puncture' as general election is called
“It’s the economy, stupid.”
One of three internal campaign slogans that helped Bill Clinton secure the US Presidency in 1992.
The state of the economy inevitably affects how people vote.
Boris Johnson is fortunate that he is heading into an election with the UK enjoying a period of record high employment and rising real pay.The problem he has is that while voters won’t be going to the polls worrying about their jobs, there’s no feel good factor either.
In real terms, average weekly earnings sit at the level they were in 2008.
For many people, work no longer guarantees rising living standards, for some it’s no longer a way out of poverty.
And the big picture isn’t great.
The UK economy looks set to narrowly avoid a recession in 2019 but current growth is weak and the ongoing uncertainty surrounding Brexit means our short-term prospects aren’t much brighter.
The National Institute of Economic and Social Research (NIESR) believes that the vote to Leave the EU has already had a lasting impact on the economy.
“The UK economy will continue to suffer a slow puncture - not a pop or a bang - but a slow puncture, as business investment is delayed in the face of uncertainty,” says Jagjit Chadha, NEISR’s director.
NIESR has assessed the Brexit deal Boris Johnson negotiated with the EU and decided that not only would it fail to deliver an economic fillip if adopted but it would also leave the UK worse off than the deal Theresa May secured.
The Treasury refuses to publish an economic impact assessment of the government’s proposed free trade agreement but NIESR believes Johnson’s deal will leave the UK economy up to 3.5% smaller in ten years time than if we remained in the EU.
That’s lost annual output of £70 billion - the Welsh economy is a similar size.
Future wealth forgone isn’t an idea that resonates, indeed some see it as a price worthy paying for leaving the EU but NIESR’s analysis suggests that Johnson’s desire to quit both the single market and the customs union will leave every region of the UK poorer.
The Conservative party has fought the last two elections on a pledge to eliminate the deficit.
Not this time round.
The Chancellor, Sajid Javid, has already begun spending big.
NIESR predicts Javid will miss the “fiscal mandate” set by his predecessor, Philip Hammond, with the deficit growing to 3% of GDP over the next three years.
The government cancelled the Budget, which had been scheduled for November 6, but on Wednesday the Office for Budget Responsibility (OBR) decided that it will publish its updated economic forecasts anyway.
They are expected to show growth falling, borrowing rising and the government’s fiscal targets flapping in the wind.
The OBR’s updated predictions will inform the election debate and ensure that the tax and spending pledges made by all parties get judged against a gloomier backdrop to the public finances.
"Fiscal policy is in disarray," says the NIESR’s Arno Hanzsche.
“We concerned about the lack of fiscal strategy and the lack of a coherent fiscal framework”.
These are pretty savage judgements to form about any government, not least a Conservative one.
“You can trust us with the economy,” has been the party’s calling card for generations, it may prove a harder sell in the coming weeks.