PM-Light At The End Of Tunnel On Inflation, But Faces Race To Meet 5 Pledges

Prime Minister Rishi Sunak has claimed that there is "light at the end of the tunnel" on inflation as the rate of price increases continues to ease and today's data shows a record annual increase in wages. Halving inflation was one of Sunak's 'five pledges' laid out in January (alongside growing the economy, reduce national debt, cut NHS waiting lists, and stop illegal immigration via small boats). While inflation is coming down it remains difficult to see if the gov't can achieve all five by year-end, risking further damage to Sunak's centre-right Conservative Party's re-election efforts.

• Opinion polling has the Conservatives trailing the main opposition centre-left Labour Party by double digits. Meanwhile political bookmaker Smarkets currently showsthe highest implied probability of Labour winning an overall majority at any time since that specific market opened (67.1%). The next election could take place any time between May 2024 and January 2025.
• With the Conservatives trailing so heavily, an incoming Labour gov't is likely to be baked into market expectations. Under Sir Keir Starmer Labour has shifted towards the political centre ground and made overtures towards the business community, while shadow chancellor Rachel Reeves has talked up fiscal responsibility.
• A Labour gov't may prove more fiscally expansionist than the current administration, and less inclined to cut taxes should the gov'ts financial picture improve. However, it appears unlikely to engage in punitive tax hikes on business, or embark on unfunded spending programmes that could imperil UK gov't financial stability.