It’s not supposed to be easy being Prime Minister, but even this one must wonder what he did in a former life to incur such wrath. Within a few days of launching election mode yet another miserable attempt at a coup had been made and failed, damaging the Government’s chances of re-election still further. Post plot, a Times Populus poll showed Labour two points lower than early December, at 28 per cent, with the Conservatives up another three to 41 per cent. All very depressing for Gordon Brown for whom there’s just one thing left he can cling to. He’s the one who decides the timing of the election. To stand any chance the Prime Minister must go to the electorate when the economy is at its optimum point. The consensus is he’ll wait until May for an economic recovery to take hold, but there is also an argument for going early just in case things go wrong again.
The data this week could be instructive. On Tuesday economists expect the inflation rate to jump sharply, perhaps to 2.7 per cent from 1.9 per cent. This will mostly reflect the jump back in Vat after last year’s cut. But as Investec points out: “This month’s reading represents an ‘undistorted’ picture of inflation, neither including 2008’s rate reduction, nor 2010’s rate hike. As such, it is telling that inflation looks likely to be significantly above the Bank’s inflation target of two per cent after such a collapse in activity.” The thing is, this jump in inflation is just the start, so by May it’s going to be worse.
By contrast, the unemployment report on Wednesday is likely to show more stabilisation. Both the claimant count and the wider ILO measure have been remarkably resilient given the economic downturn and forecasts of 3m unemployed by Christmas were wide of the mark by 500,000. This should be good for current consumer confidence; confidence that might wane nearer June when the prospect of sharp Government cuts will hone into view.
Confidence will also be borne out by retail sales on Friday. December’s figures are due and surveys suggest a buoyant month for volumes. Investec has pencilled in a jump of 1.1 per cent on the month, the second largest December gain since 1990. Indeed it may be that consumers have been in a sweet spot that might not last. They’ve had low inflation, low rates and a surprising pick up in 2008 house prices, which is unlikely to be repeated this year.
As Capital Economics point out, “There must be a good chance that, after moving strongly out of recession in the fourth quarter last year, the economy loses momentum again in the first quarter. With the first quarter figures released towards the end of April, that could provide a gloomy backdrop to an election in May or early June.” Weighing it all up, perhaps Brown should reconsider going to the polls in March?
Ross Westgate co-presents Worldwide Exchange and anchors Strictly Money each weekday on CNBC