Increasing consumer confidence means Labour should not be written off just yet, says Jonathan Loynes
The recent improvement in consumer confidence might just give Gordon Brown hope that, in spite of dire opinion poll ratings, he could still emulate John Major and pull off an unlikely general election victory in the aftermath of a deep recession. But much depends on how the economic recovery develops and whether voters give the Government credit for it.
Historically, there tends to be a close relationship between degrees of consumer confidence and the incumbent party’s position in the polls. Between 1998 and now, that relationship has actually grown closer with consumer confidence hitting rock bottom along with Labour’s poll ratings in mid to late 2008. Since then, there are some signs of consumer confidence picking up. Will Labour’s popularity follow suit?
The slump in the Government’s support last year coincided with a collapse in consumer confidence. And the depressed levels of confidence in the longest recession this country has suffered since modern records began have supported the widespread expectation that Labour will lose the next election.
However, a recovery in consumer confidence over the past few months could still change the picture. Confidence has returned to near the sort of levels which might even be expected to give a government a lead in the polls, if the historic relationship were to hold.
Brown should also be encouraged by the relationship between poll ratings and consumers’ expectations for the economy. By any historical comparison, the latter indicator is high enough to give hope of victory. However, since the polls do not show any sign of this, it seems the Government has yet to get credit for its stewardship of the economy in tumultuous times.
In spite of feeling more optimistic about the economic outlook, voters are refusing to translate that into support for the Prime Minister.
There are other reasons why things may remain bleak for the Government. First, the figures about consumer confidence measure how people expect things to change, rather than how good or bad they expect them to be. Given the conditions of the past year or so, it is hardly surprising that consumers now expect things to improve. But that does not mean they expect them to be good.
Second, it is far from clear that confidence will strengthen further from this point – and it may be lost again. Some consumers may currently be appreciating the benefits of very low interest rates, a sharp fall in inflation and recent renewed rises in house prices.
However, while interest rates are unlikely to change before the election, headline inflation is set to rise over the next six months and the housing market could weaken again. Meanwhile, unemployment is set to rise further, growth in wages is likely to slow and the enormous scale of the coming fiscal squeeze should become even clearer.
Finally, even if the improvement in sentiment continues, this may not be reflected in Labour’s popularity. The previous Conservative Government never benefited from the steady improvement in the economic outlook in the years before the 1997 election – probably because its reputation for economic management had been so badly damaged by Black Wednesday and the debacle of Britain’s forced exit from the exchange rate mechanism. Brown may have similar problems in trying to claim credit for any further recovery.
In short, if the economy has a major influence on the result of the general election, then it might just be a rather closer result than many commentators assume. But Brown may not want to take the removal men off his speed dial just yet.
Jonathan Loynes is chief European economist at Capital Economics
