Sunak Risks Failing on His Five Key UK Pledges at Halfway Point

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(Bloomberg) — British Prime Minister Rishi Sunak risks failure in the face of the very promises he has asked voters to judge him on.

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At the start of January, the prime minister outlined five pledges that he said would test his performance. They had to cut inflation in half, grow the economy, lower the national debt, cut waiting lists for the National Health Service, and stop immigrants from crossing the English Channel.

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“I expect you to hold my government and I accountable for achieving these goals,” Sunak said.

But six months later, inflation has proven sticky, recession has become more likely, and debt has soared, leading Bank of America Corp. strategists to describe the UK as “the sick man of stagflationary Europe.” Meanwhile, hospital queues are setting a record and boats full of migrants continue to land on the shores of England.

That leaves Sunak heading towards a potential general election in 2024 defined by failure on his terms.

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Here’s how the prime minister’s performance falls short of his promises:

Inflation: stuck

What he said: “We will cut inflation in half this year.”

Inflation ended 2022 at 10.5%, so it should drop to around 5.25%. In January, that looked like an easy target, with both the Bank of England and the Office for Budget Responsibility forecasting a drop to less than 4% this year.

It was widely assumed that inflation would fall mechanically as the increase in the cost of energy resulting from the Russian invasion of Ukraine fell out of annual comparisons.

But the optimists did not compromise that the labor market is as tight as it is. With the main lever for controlling inflation resting with the Bank of England, achieving the target is largely outside the government’s control and is now in question.

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Figures on Wednesday showed that inflation held steady at 8.7% in May. Worryingly, core inflation – an indicator of how stable prices are – accelerated to a 31-year high of 7.1%.

This led to a 50 basis point hike in interest rates from the Bank of England, but it is clear that fighting inflation – Sunak’s primary goal – will not go to plan.

However, with lower energy prices, Bloomberg Economics thinks Sunak will hit its target — but only then.

Growth: anemia

What he said: “We will develop the economy.”

The UK economy is growing, although it has yet to recover the output lost during the pandemic – only Germany is in the same position among the G7.

Any growth is however a success of some kind. When Sunak made its pledges, both the OBR and the BOE expected prolonged recessions amid a worsening cost of living crisis. The balance sheet office saw the economy resume growth in the final months of 2023, a forecast Sunak turned into a commitment.

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Until recently, the prime minister seemed bent on getting things done. After the second quarter saw an extra holiday to mark the coronation, economists expected steady, though not spectacular, growth. That may change.

Some economists predict that it will take a recession to finally tame inflation. The Bank of England raised interest rates again on Thursday to 5% and money markets are pricing in 6.25% by the end of the year, inflicting more mortgage pain on already stressed households.

Bloomberg Economics estimates that a 6% rate would equate to a 2% drop in GDP. That could exacerbate a polling nightmare for the ruling Conservatives, with a general election due by January 2025 at the latest.

Debt: high

What he said: “We’re going to make sure our national debt goes down.”

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It was almost lost amid bad inflation news on Wednesday, but last month British government debt rose above 100% of GDP for the first time since 1961.

This gloomy milestone is not only embarrassing for Sunak, but also has political consequences. The prime minister will find it more difficult to implement the deep tax cuts that many Conservatives say are necessary if the party is to avoid electoral defeat.

Again, inflation is the culprit. The Treasury Department is spending billions on energy subsidies and other payments to help struggling families. Meanwhile, debt costs have risen sharply, largely reflecting the fact that a quarter of UK government bonds are pegged to the retail price index.

Support payments are time-limited. What matters most to Sunak are interest rates and gold bond yields, which have risen further since the Balance Sheet Office presented its latest assessment of public finances in March.

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At the time, the watchdog ruled that the government had only £6.5 billion ($8.3 billion) of leeway against the main fiscal base – to get debt down as a proportion of GDP within five years.

All else being equal, the rise in borrowing costs since then leaves Sunak on his way to losing debt commitment, according to Dan Hanson of Bloomberg Economics. The rule is based on net debt excluding the Bank of England, which rose to 89.6% of GDP in May.

Queues: breaking records

What he said: “NHS waiting lists are going to fall”.

NHS waiting lists rose to a record 7.4 million people in April, according to data released in June by the health service.

The rise came as the government grapples with an industrial strike continuing over payrolls for NHS workers who have seen nurses, paramedics and doctors leave.

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More than 542,000 appointments have already been rescheduled due to strikes since December according to NHS Providers, a group that represents confidence in the state-run system. This is a number set to grow: the government is still at loggerheads with nurses and junior doctors, while consultants and other senior doctors are also being voted to strike.

The government has stressed the need to rein in spending to continue to fight inflation, and although a payment offer was accepted by most unions representing NHS staff in May, two unions, including the Royal College of Nursing, rejected it and pledged to strike further.

Health leaders have blamed a shortage of staff and people seeking treatment after the Covid-19 pandemic for high wait times.

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Boats: It didn’t stop

What he said: “We will pass new laws to stop the small boats.”

Perhaps Sunak’s most ambitious pledge is to “stop boats” carrying migrants from crossing the English Channel.

Parliament approved the government’s controversial illegal immigration bill in April. The number of arrivals decreased slightly compared to last year’s figures.

However, as the weather improved in June, the numbers started to rise again. Nearly 11,000 people have crossed so far this year, including more than 3,300 this month, with little sign that the government is stopping the flow.

It is equally unclear how the government plans to handle the backlog of asylum cases, which have jumped to more than 130,000. Sunak was unable to fulfill his promise to deport the migrants on flights to Rwanda, after an order by the European Court of Human Rights prevented the first flight from taking off last year.

The government says it spends around £5m a day housing asylum seekers in hotels, has bought barges to house migrants, and announced a £478m deal with France to fund a better application across the Channel. So far, the return on this investment has been limited.

— With assistance from Philip Aldrick and Stuart Biggs.

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