By David Milliken
LONDON, May 22 (Reuters) – Prime Minister Keir Starmer’s failure to allay concerns about the cost of living is driving dissatisfaction with his government among Britons, adding to economic grievances dating back to the 2008 global financial crisis.
Starmer won the biggest parliamentary majority since 1997 for his Labour Party in 2024 after 14 years of Conservative-led government. But less than two years on, Labour is polling at 17% and Starmer’s future as leader is in doubt.
“People were hoping for better things than what has actually transpired, so I think that feeds through to some of the negativity we are seeing now,” said Neil Bellamy, consumer insights director at GfK, which has surveyed British household sentiment since 1974.
Starmer is not alone: his French and German counterparts Emmanuel Macron and Friedrich Merz have equally poor ratings, in no small part due to economic unhappiness. Consumer morale readings in their countries have plunged to near three-year lows since the Iran war began in late February.
OECD data shows consumer sentiment has declined more in Britain than G7 peers since Starmer came to office, while polling company YouGov shows the economy overtook immigration as Britons’ top worry late last year.
A surge in inflation to more than 11% after Russia’s 2022 invasion of Ukraine – which coincided with bond market turmoil under Liz Truss’ brief premiership – pushed sentiment indicators to a record low from which they never quite recovered.
IRAN WAR REVIVES INFLATION WORRIES
The conflict in Iran has renewed pressures, driving oil prices up almost 50%.
While wage growth has been fairly strong since the pandemic, it has not kept pace with price rises and household after-tax income in real terms is 0.4% lower than at the end of 2019.
“The cost of living crisis is still very much fresh in the minds of people. They see inflation going up again and it’s a bad hit at a bad time,” said Stephen Millard, deputy director at the National Institute of Economic and Social Research.
Pantheon Macroeconomics’ chief economist Rob Wood agreed Britain “does stand out for its inflation concerns”.
Inflation has been above the Bank of England’s 2% target for all but four months in the past five years. That is one reason why BoE interest rates are more than 1.5 percentage points higher than the European Central Bank’s, adding to the cost of Britons’ mortgage repayments.
Cost of living increases have been concentrated in highly visible areas such as food, fuel and hospitality, with food prices now more than a third higher than at the start of 2022.
“If you go to the supermarket to buy your daily products … they’re a lot more expensive than they were four or five years ago,” Bellamy said.
GOVERNMENT OFFERS COST-OF-LIVING SWEETENERS
This has not been lost on Starmer, who on Wednesday postponed a planned rise in fuel tax and whose finance minister Rachel Reeves has shifted some environmental levies away from energy bills and into general taxation.
On Thursday, Reeves announced a raft of smaller measures ranging from free summer bus travel for schoolchildren to reduced tariffs on imported nuts.
There is a long-running and heavily political debate about the more deep-rooted sources of Britain’s economic difficulties. These range from austerity imposed after the global financial crisis to the harm caused by Brexit, rising taxation or the persistent regional inequalities highlighted by Greater Manchester Mayor Andy Burnham, a leading challenger to Starmer.
But most economists agree that slow productivity growth – the amount of extra output produced per hour worked – since the 2008 financial crisis is the heart of the problem.
Faster productivity growth is key to wages rising more quickly than inflation over the long term, said James Smith, chief economist at the left-leaning Resolution Foundation think tank and a former Bank of England official.
“We have gone from incomes doubling roughly every 10 to 20 years, to rates of income growth, particularly at the bottom, that are more like … hundreds of years for incomes to double,” he said.
While almost all advanced economies saw productivity growth slow after the crisis, Britain had a worse hit – probably due to its greater reliance on financial services.
The United States appears to have broken out of this rut since 2020, which economists link to a greater job market shake-up during COVID, looser rules on oil and gas extraction and possibly greater use of artificial intelligence.
Greater government borrowing may also be flattering the U.S. picture temporarily.
Faster growth has been a goal for Starmer, as it has for previous British governments, and on Monday the International Monetary Fund praised policies to streamline construction permits, tackle skills gaps and make it easier for fast-growing companies to access long-term finance.
But British voters may lack the patience for plans to improve living standards that take years to deliver.
“If you are a consumer … what you have experienced is a series of very negative hits to living standards,” Pantheon’s Wood said. “It’s not all that surprising that people aren’t particularly optimistic about the economy. And you won’t find many forecasters that are optimistic about it either.”
(Editing by Mark John and Catherine Evans)
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