(Bloomberg) — Rishi Sunak’s government is facing the same levels of economic misery that led to the Conservative Party’s defeat in 1997, helping explain why the prime minister plans to delay the next election until late this year.
The Misery Index, created in the 1970s to capture the combined impacts of unemployment and inflation, is likely to improve over the next 12 months in the UK as price pressures dissipate. For now, and during Liz Truss’s brief term as premier in 2022, it’s showing its worst levels since John Major was ejected from office.
The figures shed light on how voters feel about an economy that tipped into recession in 2023 and is still struggling with a cost-of-living crisis. Sunak must call an election by January 2025 and has said his assumption is he’ll call a poll in the autumn, giving time for the most painful impacts to recede.
“From an economic perspective, it makes sense for Sunak to wait as long as he can before calling an election,” said Ruth Gregory, an economist at Capital Economics Ltd. in London. “Later in the year the economy will probably be out of recession, a recovery will most likely be underway, inflation will be lower, households’ real wages will be rising and interest rates will probably be falling.”
The misery index, based on a Bloomberg analysis of unemployment and inflation data from the Office for National Statistics, averaged almost 12 since Sunak took office in October 2022. That’s down from 15 under Truss, the most painful period since the 1990s, but up from the levels under every administration from Tony Blair through Boris Johnson.
The index was created by the US economist Arthur Okun, an adviser to US President Lyndon B. Johnson, to capture how voters felt about the economy. Since then, it’s been used by politicians and academics all over the world to track sentiment over time.
For Sunak, the index underscores the challenge Sunak faces — voter perceptions of their own fortunes lag real-time data. So an improvement that most economists think is materializing now won’t register with most people for many months.
“While people blame the government for inflation going up, they don’t necessarily credit it with inflation going down,” said Luke Tryl, director at More in Common, a research group that conducts surveys in the UK, US and Germany. “Headline figures might be indicating more optimism, but people aren’t feeling that in their day-to-day lives. And how people feel has always been more important than what the stats say.”
Plotting the misery index against UK general election dates shows ruling parties tend to lose power after periods where the pain is most accute. At the moment, the Labour opposition leads the Sunak’s Conservatives in polls by some 20 points.
Inflation has been Sunak’s main challenge. Unemployment — the main headache for his predecessors — has remained subdued even through last year’s slump, which most analysts say is probably over. Soaring prices ate into the spending power of consumers and prompted the Bank of England to raise interest rates to a 16-year high, driving up mortgage costs.
The outlook is more sunny. The government’s official forecaster, the Office for Budget Responsibility, expects inflation, which averaged 7.4% in 2023, to fall below 2% in the next few months and interest rates to decline. It expects unemployment, which was 4% last year, to tick up to 4.4%.
Of course, unemployment and inflation aren’t the only issues on the political agenda. Voters are also feeling the impact of rising tax bills and deteriorating public services, especially for health. With inflation subsiding, most prices will merely rise more slowly — not fall back to levels people enjoyed before Covid-19 hit.
“Voters care about levels, not just year-on-year changes, and in level terms they’re a lot worse off compared to a few years ago,” said Andrew Goodwin, chief UK economist at Oxford Economics.
Also, a brighter economic outlook doesn’t necessarily translate into popularity for the ruling party. The Conservative position in opinion polls didn’t recover after 1992, despite the improvement in GfK Ltd.’s measure consumer confidence, according to Gregory.
At the moment, all generations are suffering from the surge in prices. Those under 40 have never felt a worse period, and older ones have to look back decades to remember an equivalent amount of pain.
Economic sentiment has been improving in recent months, thanks to lower price gains and expectations of interest rates cuts. Yet the Conservatives’ position in polls keeps worsening, with one recent survey showing the Tories with their worst-ever rating.
“This is a sort of end-of-term prime minister,” Tyl said, drawing parallels with Major’s defeat in 1997. “Major was approaching the end of a significant period when the Conservative had been in power 14 years. Rishi Sunak is at the same point. Major had Black Wednesday. Sunak has got the cost-of-living crisis.”
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
