This year, we are assured by the prime minister, will be one in which the UK \u201cturns a corner\u201d \u2014 by which he means that people will feel better off, and might even thank the government for it. You expect such messages, even platitudes, from Downing Street at the start of the year. If those at the top do not convey a bit of optimism, what hope is there for the rest of us?<\/p>\n
So what chance is there of us turning a corner this year, and of this easing the pressure on our beleaguered prime minister and chancellor?<\/p>\n
Sometimes neither of them can win. Digital ID cards were quite popular until Sir Keir Starmer put his weight behind them, after which polls showed that people were much less comfortable with the idea. If he announced three extra bank holidays, there would no doubt be whingeing about it, just as there has been some about the decision by the Scottish first minister John Swinney to award one to mark Scotland\u2019s first World Cup participation<\/a> since 1998.<\/p>\n Rachel Reeves was pilloried a few days ago for celebrating the FTSE 100\u2019s rise above 10,000 for the first time. The criticisms were on the grounds that for the FTSE\u2019s mainly global constituents, what happens in the world economy is a bigger influence than developments in the UK.<\/p>\n That seems harsh. The FTSE 100 was one of the best-performing major stock indices last year, easily outstripping the S&P 500, which Donald Trump is always bragging about. A stronger UK stock market, if not a specific policy aim, chimes with her determination to get more pension fund investment into UK equities and start-ups, and to increase the share of new listings obtained by London.<\/p>\n Chancellors get it in the neck when the stock market plunges, so why should they not celebrate when it rises? There are plenty of circumstances, directly related to the UK economy, when the UK\u2019s main stock market index would have performed very differently. And if, as some say, Reeves has provided a hostage to fortune by celebrating the market\u2019s rise<\/a>, then if it does happen to slump, she can blame global factors. Politicians always do.<\/p>\n The main corner-turning prospect this year comes from inflation, on which the chancellor was right to concentrate in her budget by switching some of the energy price burden to general taxation. The November budget will lower inflation by about half a percentage point in April, according to the Bank of England, taking the rate down close to 2 per cent, the official target. Along with a general weakening of underlying pressures, this will bring down inflation. Eurozone inflation last week fell back to 2 per cent.<\/p>\n The American banking giant Goldman Sachs predicts that UK inflation will drop to 2.1 per cent in the April\u2013June quarter, while ING Financial Markets, the Dutch-owned investment bank, says that \u201cheadline inflation will fall from 3.2 per cent today to 2 per cent from April, where we expect it to broadly remain for the rest of the year\u201d.<\/p>\n It will not be a steady ride. Some economists fear that the next set of inflation figures, due on January 21, will show no improvement or a small rise from the past reading (for November) of 3.2 per cent<\/a>. The big fall will be from April.<\/p>\n Falling inflation will help pave the way for two or three cuts in Bank rates this year \u2014 from 3.75 per cent now to a new norm of 3 or 3.25 per cent. Goldman Sachs thinks we will be at 3 per cent come September, while some others think 3.25 per cent will be the end point.<\/p>\n Politically, falling inflation should run alongside another net positive for the government. A drop in net migration is not necessarily good news for the economy or the public finances \u2014 in fact, the opposite \u2014 but it is probably a political necessity.<\/p>\n Largely because of the actions of the previous government, net migration in Labour\u2019s first 12 months in office, to the middle of last year, fell to 204,000 \u2014 down from 649,000 over the previous 12 months. The trend is firmly downwards, and soon net migration will be down to the \u201ctens of thousands\u201d once unsuccessfully targeted by Tory prime ministers, if not below.<\/p>\n If the government can combine this with a meaningful reduction in small boat crossings, traditionally the very much smaller but more visible component of immigration, it will have a better story to sell to voters.<\/p>\n \u2022 Fraser Nelson: Keir Starmer\u2019s lifeline is migration \u2014 will he grab it?<\/a><\/p>\n The problem, for both inflation and immigration, is that levels matter as well as rates of change. People are sceptical of official statistics, even \u201cgold standard\u201d statistics such as the consumer prices index, and with prices, it is the level of them \u2014 they have gone up a lot over the past few years \u2014 that they notice as much as the monthly change. Many people wrongly believe that falling inflation means falling prices, as I know from my mailbag.<\/p>\n Over time, however, low inflation does matter, even if it does not bring instant political results. Previously high inflation, even more than disappointing growth, condemned the Tories to a landslide defeat in 2024. America\u2019s \u201caffordability\u201d crisis had a similar impact on the Democrats and is now responsible for a decline in Donald Trump\u2019s approval rating, whatever he is doing internationally.<\/p>\n The ideal combination for the government, of course, would be falling inflation and stronger growth. It could happen, but the evidence from business surveys is that the economy has crawled, bleary-eyed, into 2026, and that sectors such as construction and hospitality are really down in the dumps, for which the latter blames the government<\/a>. <\/p>\n I wrote a few weeks ago about the mythical \u201cgrowth fairy\u201d. We are still waiting for her to wave her magic wand.<\/p>\n PS<\/p>\n