Rishi Sunak's Abrupt Call for Early Elections

Rishi Sunak’s abrupt call for early elections- what lies in store for the UK economy?

The UK government has certainly seen its fair share of downfalls that has affected its people, primarily due to its influence on the country’s economic trajectory. Rishi Sunak, Prime Minister of the UK as of 2022, made the bold decision to lead an economy that was recovering from continuous stagnation, following the Brexit from Europe, COVID-19 Pandemic, and the issue that required the constant restructuring of the economy- a rate of 11.1% inflation, the highest recorded in forty one years. Having spent two years in office, Sunak has abruptly called for an early election to be held six months prior to its original date.

 Some say that it may be the right decision for the Conservatives to hold their power, while others have said that the Keir Starmer-led Labour Party (opposition) now have a higher chance of winning. The big question that centers around this election is- what does the result of this election hold for the UK's economic trajectory? How does it alter current macroeconomic factors?

First off, Keir Starmer’s manifesto targetting the anomalies that are currently present under Sunak’s governance in the UK looks at countering these issues and boosting economic growth. 

Keir Starmer’s Manifesto: Inflation, Consumer Spending Confidence, and Business activity.

 Low inflation has indeed been achieved with the UK going from 11.11% in 2022 to 2.3% inflation in 2024. However, recent data has shown that the household change in disposable income, which takes into account the increase in household income, has fallen into negative numbers under the new parliament. This means that despite inflation falling, households have experienced their income after paying their taxes to be falling, concluding that the low consumer confidence and spending incentives halt economic growth in the UK. 

Additionally, the UK has seen a sharp increase in public debt and lowered inward private investment. The inflation rate falling by nearly 7% over the last two years has been due to households functioning on debt money, and the UK’s increased supply measures, which seeks to increase spending, has raised the level of debt. With less incentive being given to private investment, lower job opportunities are created in the economy and real household change in disposable income continues to decline, an argument that Starmer promises to change under his governance. 

Under the Starmer government, UK can expect to see a sharp rise of inward private investment, promising fruitful job opportunities and an increase in household incomes. The unemployment rate recently rose up by 4% from January 2024 to April 2024 according to Guernsey Press, UK. For the working population, Starmer’s decision to prevent raising income taxes will also be a key factor that would increase the level of consumer confidence to spend and incentive to demand, projecting higher economic activity in UK. With more economic activity available, businesses in the UK can expect higher sales to finance the high cost of energy and rising food prices. This is also expected to rise due to tax reliefs for businesses proposed by Keir Starmer, with the overall focus being on economic activity to rise under the Labour Party’s government. 

Rishi Sunak’s Manifesto: Sustained inflation measures, Immigration laws, Tax cuts.

 Sunak has promised to implement several measures under his manifesto of the Conservative Party, with the main highlight being the already-elected government being familiar with eradicating inflationary pressures over the past two years. Sunak has proposed a 17 billion pound Tax cut program, aiming to cut National Insurance and Tax free allowance for pensioners. Both these tax cuts reduces the burden on employees to pay for their pension, allowing them to relieve post-work life stress and maintain long term source of income, effectively enhancing planning and future spending patterns. With the opposition clearly stating the sustained increase in taxes that hurts the UK economy’s stakeholders, such measures to cut taxes will allow the people of UK to increase their spending patterns, boosting activity. Employees nearing retirement especially would be benefitted from the Conservative Party winning as they can expect higher pensions for lesser taxes. 

With the UK being in the top 10 economies worldwide and harbouring esteemed academic institutions, net migration reached an all time high under Sunak’s government, at 764,000 people outside of EU entering the UK for work and study purposes. This led to an indefinite increase in competition for jobs, primarily hurting UK’s domestic workers by giving them lesser opportunities. Workers from the UK especially will largely be benefitted by this law under a new term of Sunak's government, with the UK economy giving more importance to its domestic workers following the result of general elections favoring the Conservatives’ Party.

 To sum it up, the two governments focus on opposing ideologies. While Sunak’s main argument across multiple campaigns has been to vote for a government that is already familiar to operating in a period of continuous economic instability, the decision to forcefully deport Rwandan asylum seekers to prioritise social security has raised backlash from humanitarian groups in the UK. 

Similarly, Starmer aims to focus on the prevention of severe increases in taxes. The attraction of private investment will not be an easy thing to achieve post-Brexit, due to worsened trade relations with significant nations. Under a new Sunak rule, the UK can expect to see sustained levels of inflation and more focus on improving domestic factors, while Starmer’s government would improve international trade relations and possibly bring UK back on track as one of the fastest growing economies. At the end of the day, it depends on one decision- the UK citizen’s vote.

Sources

https://www.youtube.com/watch?v=dntDwbP0mxk&ab_channel=SkyNews

https://www.livemint.com/news/world/uk-general-elections-2024-why-has-prime-minister-rishi-su

nak-called-for-july-4-polls-explained-tory-labour-keir-starmer-11716439517888.html

https://guernseypress.com/news/uk-news/2024/06/11/jobs-market-weakens-again-after-surprise

-rise-in-unemployment-rate/

https://time.com/6987868/uk-election-conservative-party-manifesto/

https://www.telegraph.co.uk/politics/0/labour-party-pledges-manifesto-general-election-voters/