FTI Consulting UK Public Affairs Snapshot: One year on from Sunak’s five pledges: Halving inflation

Last January, the Prime Minister set out his five pledges against which the voting public could judge him: halving inflation, growing the economy, reducing national debt, cutting NHS waiting lists, and stopping the small boats. A mere two months into Rishi Sunak’s premiership, these pledges were designed to draw a line under the turbulence of Boris Johnson’s premiership and the brief tenure of Liz Truss, and to usher in a new period of stability.

The pledges – and the focus on accountability – were a sign to voters, as well as to the Conservative Party, that Sunak could be trusted to govern differently from his immediate predecessors and make progress on the key challenges facing the country.

The first, and arguably most pressing, pledge was to halve inflation, which in January 2023 was running at 10.1%, only marginally down on the generational highs seen in October 2022. Amid grave concern about the soaring costs of food, energy, and mortgages, this was the metric against which Sunak expected to be judged above all others. He was also, of course, attempting to define what should be considered a success for his administration.

However, the pledge was greeted with cynicism in many quarters. Many economists predicted that such a correction would occur anyway, driven by global economic trends rather than domestic politics. Sunak’s political opponents also implied that, if inflation was within the Government’s gift to control, perhaps Downing Street was at fault for the rapid inflationary pressures seen during 2022.

Whatever the reasons behind it, it is a pledge that has undeniably been met one year on. In October 2023, ahead of even the most optimistic forecasts, inflation fell to 4.6%, falling further in November to 3.9%. With forecasts suggesting it will continue to fall throughout 2024, the Government can justifiably trumpet its success – a welcome platform for the upcoming General Election.

However, halving inflation does not in itself alleviate the immediate cost-of-living burden on voters or translate to a general sense of growing wealth and security. According to most polls, cost-of-living concerns continue to shape voting intentions, which is unsurprising given that real household disposable income per head contracted at the end of 2023, a trend predicted to continue in 2024. Alongside this, falling inflation has not yet translated into the Bank of England cutting interest rates.

And while Sunak has heralded this as a personal success, such a claim is tenuous. Other than discarding the fiscal policies pursued by Liz Truss and seeking to project an image of fiscal discipline, it is difficult to see how the Government’s actions have made a substantial difference to inflation rates. Cynics may note that the large household energy bills increase seen in October 2022 left the calculations at a convenient time, and Shadow Chancellor Rachel Reeves has also highlighted that the current rate is still higher than the Bank of England’s target of 2%.

However, fiscal policy remains difficult territory for the Labour Party, which itself must convince voters that it can be fiscally responsible while also improving public services and meeting its pledge for Britain to become the highest-growing economy in the G7. Given the risk of becoming a hostage to fortune, it is likely that Labour will stick to calling out the Conservatives’ chequered fiscal history rather than signal any dramatic change of course.

Meanwhile, Sunak faces wider challenges as he banks his first pledge and moves on to the next part of his economic plan. Having changed political strategy to focus on tax cuts earlier than he might have liked – in an attempt to reverse Labour’s polling lead – he will know that all eyes will be on the Spring Budget on 6 March. The central assumption is that fiscal discipline will remain central to the Government’s narrative and that any tax cuts will be paid for by post-election spending constraints, which will include cuts to Whitehall budgets.

The principal unknown is whether Sunak will be given any credit at the ballot box. Voters may see Britain’s economic problems as being of the Conservative Party’s own creation, or public concern may shift to the Government’s performance against the other pledges, not least on the small boats. Nor is it impossible that unforeseen geopolitical events could result in inflation spiking upwards again.

Even macroeconomics can be a contact sport when it gets political, and while the Prime Minister will be content that he met his first pledge, he is by no means out of the woods yet.

Next week, we will review the second of the Prime Minister’s pledges: Growing the economy. To get our snapshots delivered straight to your inbox, you can sign up to our mailing list below.