Inflation is down, the economy is growing. But will cost-of-living crisis sink Sunak in the U.K. election?

After 14 years of Conservative rule, British voters may just be looking for a change in leadership when they go to the polls on July 4, regardless of the issues at play.

Earlier this week, British Prime Minister Rishi Sunak called an election — hoping, perhaps, to capitalize on some positive recent economic news, considering his Conservative Party's standing in recent polls. Yet most forecast Keir Starmer's Labour Party as favoured to win.

Key issues of the six-week campaign will likely include the millions who continue to linger on waiting lists for service from the government's strained health-care system, the National Health Service. Immigration, too, and the number of migrants arriving in Britain illegally, will be an important issue, especially to Conservative voters.

But the cost-of-living crisis may be the dominant issue during the the six-week campaign.

"Both sides will talk a lot about the economy," said Anand Menon, professor of European politics and foreign affairs at King's College London. "At least so far — and it might change with [their party platforms] — no one really is planning to do very much about it." 

Over the past couple of years, British voters have suffered through a cost-of-living crisis, in which the prices of essential goods rose higher than the average worker's wages.

Living standards took a significant hit and will be lower when Britain elects a new government than at the time of the last election in 2019. 

The British economy fell into recession at the end of 2023 for the first time since the onset of the COVID-19 pandemic. A year before, at the end of 2022, inflation jumped to a 41-year high, hitting just over 11 per cent. Russia's war with Ukraine also led to energy prices shooting up, impacting many voters because of Britain's reliance on gas.

"The energy price spike was very big here and quite long-lasting because there was a very big government support scheme, and then that ended," said Robert Ford, political science professor at the University of Manchester. 

"Although the world market prices came down, they didn't come down in quite the same way for voters because they got kind of cushioned from the worst of the spike," he said.

"And then when that support disappeared, basically the prices stayed high."

Food prices spike

Food prices also spiked in the U.K. For example, 500 millilitres to one litre of olive oil, priced on average at $6.46 Cdn in April 2021, cost $14.72 Cdn in April 2024, a 128 per cent change, according to the U.K's Office for National Statistics.

Other food items saw significant increases, too, including lettuce (63 per cent) and beef burgers (55 per cent).

"That really hit people hard," Ford said.

Voters were also hit with higher interest rates, in an attempt to cool the economy and bring down inflation. Like the Bank of Canada and other central banks around the world, the Bank of England raised interest rates aggressively. Rates increased 14 times, from 0.1 per cent in December 2021 to 5.25 per cent in August 2023.

"A lot of people in Britain are on relatively short-term fixed mortgages," Ford said. "So there's a kind of rolling impact of the interest rate rises in the last couple of years, still hitting hundreds of thousands of people every single month, as their mortgages roll on to a higher rate."

That has also spilled over into rents, he said, which have gone through the roof.

According to a recent survey conducted by the Financial Conduct Authority, the country's financial regulator, more than 7.4 million people in the U.K. struggled to pay a bill or a credit repayment in January. It estimated that 5.5 million people fell behind or missed a bill or credit payment in the six months to January 2024.

However, Sunak can point to some recent positive economic trends: That 7.4 million figure is down from 10.9 million in January 2023.

The Office for National Statistics reported earlier this month that the British economy grew by 0.6 per cent in the first quarter from the previous three-month period. The increase was higher than the 0.4 per cent predicted by economists and the strongest since the fourth quarter of 2021, when the economy was rebounding following the sharp contraction during the pandemic.

Inflation falls to 2.3%

As well, the Office for National Statistics said this week that the U.K.'s inflation rate had fallen to 2.3 per cent, the lowest rate in three years.

"This morning, it was confirmed that inflation is back to normal," Sunak said when announcing the election date. "This means the pressure on prices will ease and mortgage rates will come down."

Also, wages have been rising at a faster pace than inflation, putting more cash in people's pockets in real terms, while energy prices stabilize, and interest rates haven't been raised in nearly a year.

Yet the economy, while growing, will grow the slowest among the G7 countries, according to the Organization for Economic Co-operation and Development, which recently forecast growth in 2025 at one per cent.

And many Britons are still struggling. Inflation, for example, may be down, but prices on items are still more expensive than they were a few years ago. 

"Bringing inflation down doesn't mitigate the impact of having had the inflation in the first place," Menon of King's College London said.

"So everything still is more expensive," he said. "Yes, salaries have gone up, but still people notice, don't they, when prices are higher than they were."

The University of Manchester's Ford noted that this is the first government ever in modern post-war British history where, over the course of the full parliamentary term, real take-home incomes have gone down. And according to some reports, people's living standards have gotten worse. 

'Are you better off?'

Although global forces have certainly played a role in Britain's economic struggles, it would be a challenge for any government to convince voters that this is not its fault or that it shouldn't be punished for this, he said.

"Because it's the [former U.S. president] Ronald Reagan question: 'Are you better off than you were four years ago?' And an awful lot of people will say no," Ford said.

"That's why the fall in the inflation rate doesn't matter.The inflation rate is eagerly watched by everyone in the business community, in the media community. It does not accord at all with people's lived experience."