After years of being relatively low, inflation is now re-emerging with a vengeance. The Bank of England expects it to rise to more than 7% by the spring of this year. Shortages of both workers and goods in the economy mean prices are rising, and the spiralling cost of energy means household bills are rapidly increasing. Pressure on household incomes is therefore now certain to be the next big political problem facing the government.
In addition, the public are now acutely aware of it. According to a recent Deltapoll survey some 55% of respondents think that the cost of living is the most important issue facing the country at the present time. This is 22% ahead of the second most important issue, the NHS, which shows how serious it has become as far as the public are concerned. If there is no new strain of COVID-19 waiting in the wings, this figure is likely to rise as energy prices in particular, bite into household budgets.
One of the most intensively researched topics in political science is the relationship between the state of the economy and political support for incumbent governments across the world. A lot is known about economic voting, as it is called. This body of research throws considerable light on the effects of the cost-of-living crisis on support for the government in Britain.
The chart below shows the percentage of respondents in successive monthly surveys over a period of nearly 50 years who intend to vote for the governing party. It is rescaled to compare it with consumer confidence, a measure of the public’s perceptions of the state of the economy.
The chart provides an overview of the relationship between the economy and the popularity of successive governments in Britain in the long run. The correlation between the two series is moderately strong (0.43), which means that as confidence increases so does support for the governing party, and the reverse is true when confidence declines.
Monthly Government Voting Intentions & Consumer Confidence 1975 – 2022
The average voting intention score for the governing party over this period was just under 38% – so the electorate is not that enthusiastic about incumbent governments. There has also been a lot of volatility over the years, and this has been growing over time, making elections more unpredictable. This volatility is most apparent in the chart for May 1997 when Labour’s landslide victory replaced a relatively unpopular government led by John Major with a new government led by Tony Blair.
The consumer confidence data comes from surveys conducted by the Organisation for Economic Co-operation – that is, the advanced industrial democracies, who publish this data. The series is based on responses to a variety of survey questions about the financial situation of households, consumer feelings about the general state of the economy and views about the prospects for employment and savings over the next 12 months. A score above 100 signals optimistic expectations and a score below that indicates pessimistic expectations.
If people are optimistic, they are more likely to spend money, which has the effect of stimulating growth and increasing employment in the economy. The series is used as a leading indicator in economic forecasting, helping to explain what is likely to happen to the economy in the coming year.
As well as helping to forecast the future of the economy, it the series? also helps to forecast support for governing parties. When consumers are optimistic about the future, they tend to reward the government with their support. If they are pessimistic they tend to choose one of the opposition parties.
This was particularly evident at the time the financial crash, which occurred in 2008. Consumer confidence fell rapidly at about the same time as government support but it recovered more rapidly than the latter in 2010, and so was a leading indicator of future support. Unfortunately for Prime Minister Gordon Brown, the recovery was not enough by the time of the general election in May of that year to win.
Statistical modelling shows a clear pattern that rising consumer confidence produces an increase in government support. And falling confidence produces a decline in support.
Other factors are also taken into account when modelling these relationships. These principally include the abrupt changes which can happen when there is an election, the impact of the Liberal Democrat vote as something which influences support for both the Conservatives and Labour, and also the rising volatility of government voting intentions over time.
This exercise shows that a 1% increase in consumer confidence raises support for a governing party by just over 1%. A fall in confidence produces a decline by the same magnitude. Consumer confidence has been falling slowly since October 2021 and, as voters are hit by higher prices for food, accommodation, and energy costs this will probably accelerate over the next few months. This suggests that the government will face significant losses in the May local government elections.
If inflation abates by the end of the year, as the Bank of England expects, then confidence will recover along with support. However, it is still unclear how much inflation will actually decline, particularly if the economy gets into a wage-price spiral. So the government could be facing a serious loss of support by the time of the next general election.
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Paul Whiteley has received funding from the British Academy and the ESRC.