What is behind Rishi Sunak's surprising confidence?

  • By Faisal Islam
  • Economics teacher
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Watch: Sunak Challenges 2024 Will Be 'Bounce Back' Year

When I arrived in Downing Street to interview the Prime Minister earlier this week, her aides were whispering about mysterious last-minute „works of art” that had yet to appear.

As Rishi Sunak entered the room, the hitherto blank screen flashed with a multi-colored line chart leading downwards with the words „Inflation. Halved.”

Mr Sunak and his team are working hard to turn around the UK economy. In a wide-ranging interview on the economy, he spoke of turnarounds and bouncebacks, insisting that „it's not just me” who has seen green shoots of recovery across the country.

„Wages are up. Energy bills are coming down. Pensions are going up. Tax cuts are already happening and benefiting people. All this gives me hope that the future is bright,” he said.

„2024 will be another great year for the UK economy.”

I'm a bit shocked at the level of his Sunni optimism that his political position means the Prime Minister has no choice but to say he expects an economic recovery.

Three important dates

The float comes on the back of a series of poor polls for Mr Sunak and the Conservatives and fast-approaching local elections in England on May 2.

But the prime minister's eyes are fixed on the other three dates of the month.

A recession can be officially declared on May 10, when January-March GDP figures are expected to show the economy is growing again.

On May 22, we'll get inflation figures for April, the first time in three years that the headline rate forecast will fall short of the Bank of England's 2% target.

But the next interest rate decision on May 9 may illustrate Mr Sunak's honesty.

Until this week, when the Bank was absolutely certain that the inflation shock had been defeated, an interest rate cut was expected to come in the summer or later.

But Bank of England Governor Andrew Bailey said in his interview with me on behalf of UK broadcasters on Thursday that rates were unchanged at 5.25%, the highest in 16 years.

When I asked him if he hadn't reduced the fares yet, he replied: „We're on our way.”

He said the bank should not wait until inflation is below 2%. He added that market forecasts of two or three cuts were „reasonable”.

So a cut is now to be played in May.

Both the prime minister and the chancellor were at a loss to actually tell the independent Bank of England what to do. One can imagine Downing Street doing a rain dance for a series of rate cuts before a general election.

'It's not good…it's stopped getting worse'

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High insurance costs will affect Mr Tench's expansion plans

Yet when I was next to Crewe earlier this week and asked if businesses and households were seeing a turnaround or stabilization in the cost-of-living crisis, I got a uniformly negative response.

Shayne Ashley Dench, who runs A Star Taxis, quoted a recent quote to insure her fleet of tens of thousands. „We can't put that at the cost of the customer because we want to be an affordable, reliable taxi company in this area,” he said.

A second-hand car dealer told me that some customers said they could afford a car but put off buying because of insurance costs. At Wheelock Hall Farm Shop, a man told me his fixed energy bills had gone up and his car insurance had doubled. „It's getting worse,” he said.

One nurse admitted that her gas and electricity prices have stopped rising, but „it's not getting better, it's getting worse.” He listed all the other bills that will go up in April – mobile phone, broadband, water and council tax.

The psychology of personal finance is very interesting. Do people really perceive the falling rate of inflation as good news, or are prices higher than they have been? And will a household with lower bills feel the pinch if prices rise above inflation or see their big energy bill fall?

They point out that members of the public in Downing Street, radio phone-ins or on TV will find some areas where they feel personal financial pain.

But consumer confidence numbers have been the way it's been measured across the economy for decades. The GfK gauge of overall consumer confidence is still in clear negative territory, but in new numbers for March, people's views about their own finances over the next 12 months turned positive for the first time since January 2022.

A map followed very carefully by the Prime Minister.

Cautious resistance

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For shadow chancellor Rachel Reeves, the situation is clear. The economic situation is dire, both absolute and relative, and whoever wins the upcoming election will have the worst overall situation since World War II.

In a lecture this week, he pledged to reduce debt over a five-year period, taking on the same self-imposed straitjacket that currently controls the Conservative government.

His opinion was much talked about for a moment in 1979, when he suggested the Thatcherite reforms. The note, he told me, was about cutting red tape on the scheme to allow more new homes.

But in the absence of major government investments, the heavy lifting to be done through planning reform will be enormous. Every one of my questions about what this would mean for public spending or tax cuts was met with a response about the need to get growth.

Opposition parties are very cautious on policy details, wary of doing anything risky that could jeopardize their precious poll lead in the months leading up to elections.

Could it really have lasted if there was a widely perceived turnaround, a series of interest rate cuts and an end to the UK recession?

Is the election hopeful?

Back in Downing Street I told the Prime Minister that even with a U-turn, a meager budget with £45 billion of unfunded tax cuts had trashed his party's economic credibility in the eyes of key sections of the electorate. People who took out mortgages in the zero rate era.

Responding that the economy faces „various challenges,” he pointed to his pandemic furlough plan as evidence that he „knows how to run the economy.”

I also asked him if he was angry that a conspiracy was being hatched in his party to remove him from office, coming from the same people who supported the mini-budget.

He didn't deny the premise of the question, laughing: „These things don't make me angry because I'm basically not interested in Westminster rumours.”

When I asked him if he would still be the prime minister after the local elections in May, he smiled and said yes. He lasted longer than the last person I asked that question to, President Kwasi Kwarteng, who was ousted a day later.

So the recession, inflation below target, the first of two or three interest rate cuts over the summer to help consumers and make room for pre-election tax cuts in September. The most optimistic Conservative strategists could topple the euro in Berlin in July and topple Harry Kane.

The reality is that a window is opening for some kind of change in the economic climate. But the real question is whether that will happen quickly and clearly enough to change the dial with voters.

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