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Rachel Reeves, shadow chancellor, will claim on Tuesday that Rishi Sunak is “gaslighting the British public” over the state of the economy, ahead of data expected to show the UK has moved out of a technical recession.
The prime minister sees May as a crucial month in proving his economic plan is working, with figures forecast to show the economy grew in the first quarter of 2024 and inflation falling below the Bank of England’s 2 per cent target.
After the governing Conservatives’ disastrous showing in local elections last week, Sunak and the chancellor, Jeremy Hunt, want to get back on the front foot by focusing on improving the country’s growth prospects before the next general election.
In an attempt to get ahead of any upbeat economic data, Reeves will use a speech in the City of London on Tuesday to claim that it is too little, too late and that the public are not feeling better off.
Her speech comes ahead of the BoE’s interest rate decision on Thursday, growth figures for January to March on Friday and the release of April’s inflation figure on May 22.
“By the time of the next election, we can, and should, expect interest rates to be cut, Britain to be out of recession and inflation to have returned to the BoE’s target,” Reeves will say.
Reeves will say “these things could happen this month”, although markets do not expect the BoE to cut interest rates on Thursday. Growth data is expected to show that a mild recession in the second half of 2023 is over.
“I already know what the chancellor will say in response to one or all these events happening: he has been saying it for months now: ‘The economy is turning a corner,’ ‘our plan is working,’ ‘stick with us’,” Reeves will say.
But she will also claim that this is not how it feels to voters. “All they hear is a government that is deluded and completely out of touch with the realities on the ground. The Conservatives are gaslighting the British public.”
Sunak is hoping that an improving economy will change the public mood ahead of an expected autumn election, with opinion polls showing that it remains the most important issue for voters.
Hunt is eyeing a tax-cutting Autumn Statement in early September — targeting another 2p cut in national insurance rates — but only if the public finances improve over the next few months.
Sunak has repeatedly claimed the economy has “turned a corner” since the start of the year. “Inflation has been more than halved,” he told a business audience in Coventry in March. “Mortgage rates, energy bills falling, wages are rising, consumer confidence, business confidence increasing.”
Reeves will tell her City audience that Labour will provide new thinking on the economy, including state-funded investment in green technologies, but that her overarching aim is to provide business certainty.
She will say that Labour will provide “responsible government — offering stability of direction in a fast-changing world”, adding: “After years of political chaos and short-term thinking at this election: stability is change.”
The Bank of England is expected to keep interest rates steady at a 16-year high of 5.25 per cent on Thursday but traders will be on the lookout for signs of a possible cut next month.
Rob Wood, chief UK economist at Pantheon Macroeconomics, expects the BoE will signal that it plans “to cut interest rates faster and by more than markets are currently pricing”.
He added the election outcome was closer than the polls had suggested it would be, pointing to a hung parliament, so “the election isn’t a foregone conclusion”.
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