It’s the economy stupid

Look for an explanation for Theresa May’s decision to call an election, and you need to look no further than the economy.

It was James Carville who coined the phrase. He was the lead strategist in Bill Clinton’s political campaign, and he hung a sign on the headquarters from which the campaign was orchestrated saying:

Change vs more of the same

The economy, stupid

Don’t forget health care

It’s funny, isn’t it? The first and third item on that list are as pertinent as ever, indeed President Trump seemed to campaign on the premise ‘change versus more of the same Clinton dominated politics.’

But it was item number two that has become famous.

Right now, the UK economy is in good shape.

UK unemployment is at its lowest level ever recorded, with data going back to 1971. GDP grew at a healthy 0.7 per cent pace in Q4 of last year.

But the surveys which give a forward indicator are not quite so good.

Sure, the IMF has revised its projections of the UK economy in 2017 upwards. It is now forecasting growth of two per cent, whereas last autumn it was forecasting growth of just 1.1 per cent.

But then the IMF also revised its forecasts for the global economy upwards.

Alas, the surveys are not so good.

Recent purchasing managers indexes are okay but point to a UK economy that has gone off the boil a little this year, and is not performing as well as the euro area, and most certainly not as well as Germany.

Retail seems to be slowing, with data from the ONS and British Retail Consortium pointing to a sector that seems to be in second gear.

UK inflation is close to rising above increases in average wages, meaning that real wages are set to fall.

Right now, Mrs May’s government stands tall in the opinion polls, but then the UK economy seems to have seen its best run since the 2008 crisis.

The economy is strong (ish), but only a stupid look at the data would deny the probability of a slowdown.

If the election cycle was allowed to run its course, the next election would occur in 2020, soon after the UK will have left the EU, a time when the economy may well be struggling.

The decision to call an election now, and thereby delay the next vote to 2022, makes sense – up to a point.

But it really would be stupid to forecast what shape the UK economy will be in by the year 2022.

Mrs May might have bought herself two more years in office, frankly the jury is out on whether this will improve her prospects beyond 2022.

But Mrs May is not stupid, she surely knows this. Perhaps, her real motivation in calling an election on June 8^th was what she said it was, to try and strengthen her hand in Brexit negotiations.