Recovery and interest rate cuts won’t be enough to win Sunak the election | Larry Elliott

As the weeks roll by, Rishi Sunak’s decision to call the election before he needed to appears ever more curious. Unemployment is up and growth has stalled. NHS waiting lists have increased. There will be better news from this week’s annual inflation figures but it won’t make a difference to voting intentions.

The case for holding on until the autumn was that it would give time for the Bank of England to start cutting interest rates and for recovery to become more firmly embedded. That case now looks all the stronger. Threadneedle Street is not going to deliver a pre-election cut in interest rates this week and by the time it does start to reduce the cost of borrowing, the Conservatives will be long gone.

Likewise, when the growth figures for the second quarter come out in August they are likely to show solid – if unspectacular growth – of about 0.4-0.5%. After the 0.6% growth in the first quarter, it would have made Sunak’s argument that the economy has turned a corner that much stronger.

In truth, though, waiting until the autumn would have only delayed the inevitable. As the election for the European parliament clearly showed, there is a big anti-incumbency factor at play. That was evident in Germany, where all three members of the ruling coalition polled badly. It was evident in France, where Emmanuel Macron has taken the gamble of calling a snap election after Marine Le Pen’s National Rally won 32% of the European parliament votes. And it will be evident in the UK on 4 July, when voters will kick out the party that has been in power for the past 14 years. There is no little irony in post-Brexit Britain being on the point of electing a soft-left Labour government when large chunks of the EU have lurched to the right.

Indeed, the notion that life on the other side of the Channel is one of progressive rationality looks a bit silly in light of the state of politics in the EU’s three biggest countries: Germany, France and Italy. Wasn’t it Brexit Britain that was supposed to be the cradle for fascism?

The truth is that the vote against the status quo in the UK in 2016 and the vote against the political establishment in the EU elections last week had the same roots: inequality, nugatory growth in living standards, unhappiness about high levels of migration, and a growing realisation that the parties of the centre-left and centre-right were in hock to a liberal economic orthodoxy that every now and then shifted power from one party of technocrats to another but offered no prospect of fundamentally changing anything.

Now chickens are coming home to roost. The Conservatives in the UK face being reduced to a rump, with Nigel Farage keen to engineer a reverse takeover. It is unsurprising that people in the UK are unhappy with the Conservatives. What is surprising is that it has taken five elections for voters to come to the conclusion that the Tories have no real answers to the problems facing the UK. If Labour proves equally bereft of ideas, the backlash will be brutal and – notwithstanding Labour’s likely massive parliamentary majority – not long in coming.

The task of boosting productivity, raising living standards and spreading prosperity to all parts of the UK is a formidable one. The Resolution Foundation thinktank says per capita income has grown by just 4.3% in total during the 16 years since the financial crisis, compared with 46% in the 16 years prior to that.

Meanwhile, the EU has experienced decades of weak growth and its share of global GDP has fallen from 28% to 17% since 1980. In large part that has been due to the straitjacket imposed by monetary union, but matters have not been helped by strict budgetary controls demanded by Brussels. It is no accident that growth was a lot higher before Europe embarked on its drive for ever closer union.

It would be wrong to think that the EU is unique, because pretty much every country in the developed west is experiencing the same swirling discontent. Even the US, a country that has maintained its share of global GDP while the EU has been slipping back, is displaying strong anti-incumbency sentiment.

The US has plenty of things going for it. It controls the world’s main reserve currency. It is more willing to take risks with economic policy. It has the world’s biggest and fastest-growing companies. It has recovered much more quickly from the Covid-19 pandemic than other western nations, and it was less affected than Europe by the cost of living crisis. Joe Biden should really be comfortably ahead of Donald Trump in the race to win this year’s presidential race.

The US has come closest to find a new growth model to replace the one that seriously malfunctioned during the global financial crisis (GFC) of 2008. To his credit, Biden has been prepared to break with orthodox thinking by running big budget deficits, investing heavily in a green industrial strategy and by slapping tariffs on Chinese imports.

It has been clear since the GFC that something has gone wrong with western capitalism and that a different approach is required. The past decade and a half have been marked by weak investment, modest growth in living standards, attempts to prune welfare bills and large migration flows. The rise of populist parties is a direct consequence of these trends and of the failure of mainstream political parties to respond to them. Social democratic parties came about to protect working people from insecurity. All too often, they have been missing in action.