Starmer Unpopular - It's the Economy Stupid

Growth from the end of Sunak
to the start of Starmer

I've recently heard various theories for why Keir Starmer is the "worst Prime Minister in living memory".  Is it his purging of the Labour left? Is it his taxes? Is it his lack of charm?  Is it his wooden persona?  Is it facilitating genocide?  Is it categorising grannies with cardboard signs as terrorists?  I have a theory that the driving factor is actually, as Bill Clinton would say "the economy stupid".  Britain's economy is supposedly bumping along the bottom with growth at 0.1% if the Bank of England's figures are correct.  Note that GDP figures are not always correct and are often revised retrospectively as their calculation is far from simple.  If the Bank's figures are 0.2-0.5% out we could have been in recession since the Sunak government which achieved at least one quarter of negative growth (two is an official recession).  If the primary driver of how people vote is the day-to-day economy, this would explain why Starmer is even more unpopular than John Major during his double-dip recession of the 1990s.

Mr MacLeod 

So how reliable are the BofE's figures?  Well, we know for a fact their inflation figures have been rubbish of late.  Recent internal and external reviews (see here and here) have shown that the government underestimated inflation during the post pandemic/ Ukraine invasion inflation shocks.  If it's underestimating inflation, it's probably calculating growth incorrect too.  Indeed they have been... So I wouldn't be surprised if someone pops up in a few years and tells us that actually the economy has been in recession after all (see here).  There certainly seems to me to be some disconnect between the Bank of England's statistics and my lived experience... At best we seem to be experiencing what Iain Macleod would describe as Stagflation - stagnant economic growth, high inflation and increasing unemployment... So ...

Growth since the Pandemic 

We all laughed at Liz Truss but her dash for "Growth Growth Growth" through deeply misguided and appallingly executed did at least correctly identify Britain's great problem ... Stubborn stagnation.  Since Brexit the economy has been seemingly stuck in a doom loop of near zero growth.  Hence various bungled attempts to give it CPR which fail to bring the patient back to life but give them a nasty shock before they return to a coma...  It is thought that Britain's hard Brexit far from providing £350m/week for the NHS actually shaved about 2% off GDP.  That's the difference between getting by and bumping along the bottom.  Last time we were here Ted Heath's solution was the Barber boom and...

Looking back at historical GDP figures (see right) we can see that in the 1950s and 60s Britain was often making 5% growth ...by the 90s this had lowered to 3 or 4% and by the 2010s 2 or 3%.  The figures are then slightly distorted by the Pandemic when there was extreme negative growth followed by a brief boom adjustment... But since then we've been averaging (see above graph) 0 to 1%. ...often less.  This isn't all down to Brexit, there is a global trend of Western economic decline but Brexit seems to have been like tying a lead balloon to the drowning man...

The question is what drives this trend.  Well, there are various theories... One is the aging population and declining birth rate.  Whilst the official inflation figures that we now know were wrong but not by how much have not been too bad recently (if you disregard the post COVID economic shock when they went to 10%) ... The CPI index does not really reflect things like housing costs very well.  It does attempt to reflect them to some degree but it bases it's calculations on the housing costs of owner occupiers.  So if your rent has inflated ...sorry that doesn't go into the calculation...

The reason for this ostrich-like approach is that buying a house is not seen as day to day expenditure - it's a one off purchase.  This is a bit silly because the increasing amount people are saving to buy a home has a strong negative effect on economic growth.  Added to this House Price Inflation is very high meaning if it was properly integrated into CPI then we'd get a very different graph...

As we can see House Price Inflation and Private Rents are significantly higher than the headline CPU inflation rate with HPI frequently breaching the 10% barrier and Private Rents not far behind.  Before the sub-prime mortgage financial crash figures were even worse.  In the early 00s HPI frequently breached the 10% barrier.

So what?

Well, all of this has an effect on the amount of money being spent in the day-to-day economy.  That is to say that inflation depresses growth.  There are other increasing signs of poor health in the economy.  For capitalism to work there must be regulation to prevent the growth of monopolies which depression competition.  Astute social observers will have noticed an increase in the number of flamboyant billionaires about.  This is not actually a good thing for the health of the overall economy because billionaires tend to hoard wealth rather than spend it which does not create growth ...