After much good economic news over the past eighteen months, it is perhaps easy to forget that for most of this parliament, the release of GDP figures were anticipated with baited breath, thought to be able to decide the government’s fate.
Today’s lacklustre figures have, if not completely raised that prospect again, at least drawn attention back to Britain’s Gross Domestic Product. A halving of growth from 0.6% in the final quarter of 2014 to 0.3% in the first quarter of 2015 is hardly the ideal news for the Conservatives just more than a week from polling day.
But what effect will this surprise fall in growth have on the campaign and what role will the economy really play in determining the election result?
The historical record
One reason to pay attention to economic announcements close to polling day is that such figures are thought to have swayed elections in the past. Most famously was at the 1970 General Election, when Harold Wilson’s Labour government was leading in the polls and thought to be on course for election victory. However, a set of economic estimates released just days before the election showed a surprise fall in the balance of payments. This metric, the GDP of its day in terms of political importance, turned momentum on the campaign as economic optimism soured, and Ted Heath’s Conservatives pulled off a surprise victory a few days later.
The relationship between GDP and the pound in the pocket
Other than in 1970, there appear to be few cases of economic news vastly impacting election results though. This may be because abstract GDP figures mean little to those outside Westminster. Despite official figures saying that GDP per head has been growing over recent months, the proportion of people saying their personal finances are been getting better has still not overtaken the proportion saying their finances are getting worse. As the graph below shows, perceptions of people’s own finances have improved only very slowly despite the economy growing at quite a pace. This suggests that national GDP figures have little relation to what individuals experience in terms of their personal budgets.
The attention paid to GDP
Despite differences between personal finances and the national economy, GDP announcements do make some impact with the public.
What matters in this instance is not individual announcements, but the overall narrative. A series of good announcements may well start to influence the media’s telling of the economic story, which then filters through to voters. Bad announcements are more likely to stick in the mind than good announcements (the graph below suggests the recession is still playing on the minds of a fairly large proportion of the public whatever the news has been in the last two years), but overall, the release of GDP figures is one of a number of influences which have a cumulative effect on forming a “trend” that the public broadly follows.
The effect of economic growth on perceptions of political leaders
One of the ways this cumulative effect takes hold is also in how it affects perceptions of leaders’ competence on the economy. George Osborne’s ratings on the issue fell during the dark days 2011-2012 (see the light blue line below), but have recovered along with the economy itself. The proportion of Britons trusting him on the economy has doubled from a low of 16% in the summer of 2012 to 33% today.
Ed Miliband and Ed Balls have struggled to improve their ratings as they are still tarnished by the record of the last Labour Government and perceptions of their economic competence have broadly followed more general impressions towards them. It is no coincidence that Ed Miliband’s ratings on the economy have improved at the same time that his personal ratings have started getting more generally. In the absence of a track record though, he still falls behind both Cameron and Osborne.
The economy and the government
Being less trusted than Osborne and Cameron on the economy is particularly grating for Miliband as the public broadly agrees with the Labour leadership when it comes to what should be done on the economy – at least in theory.
Despite growth rates changing over the past five years, people’s attitude toward government action has remained remarkably consistent. For the entirety of this Parliament, around half of Britons have thought that the deficit is being cut too much too quickly, compared to only around a third who think the way that the government is cutting spending is fair. Even this close to the election, twice as many Britons agree (52%) than disagree (26%) that it would be better to slow the pace of cuts, even if it takes longer to get the country’s finances back of track. Given these opinions, it is perhaps quite remarkable that Labour have trailed the Conservatives consistently as the party most trusted on the economy, but goes to show the importance of having a track record of success.
Economic performance and voter confidence
The most important effect GDP announcements have on politics is the way it cumulatively impacts on the public’s sense of the country’s general success. Pessimism about the state of the country was ripe during the early years of the parliament, when few Britons thought the country was generally headed in the right direction, and up to three in five though that it was not. Positive sentiment has increased since though and heading into polling day, the Conservatives are in a good position given more people agree (46%) than disagree (34%) that the country is headed in the right direction. This suggests that 2015 is not a “change” election.
Impact on the final week
With just more than a week to go, will today’s GDP figures impact the campaign? Given the proximity to polling day and the “cumulative” rather than immediate effect economic news appears to have, it is most likely too late to make a different to the Conservatives’ voting intention lead. If anything, it may help the incumbents by raising the “salience” of the economy. The issue has trailed immigration, the NHS and the cost of living for most of the last year in terms of voter priorities, so a bit of economic uncertainty may do no harm to the Conservatives chances by focussing voters’ minds on an area of Tory strength. It also plays into the narrative that it is no time to take a risk on a change of government.
Finally, whereas Labour struggled last week to get their “NHS week” to stick and were constantly pulled “off message”, the Conservatives get a free chance today to talk about one of their key campaign messages – no doubt why they scheduled their “economy week” to coincide with today’s announcement. The growth figures will however, have been a disappointment for the Chancellor, but he will not necessarily treat them as bad news.