Keir Starmer.
Credit: Reuters Photo
By Andrea Felsted
What do Keir Starmer and Hein Schumacher, chief executive officer of Unilever Plc, have in common?
They have both taken top jobs just as things are getting a little better.
Starmer becomes prime minister as inflation is being tamed and interest rates have probably peaked. Schumacher took the helm almost exactly a year ago, as the big hikes in commodity costs were dissipating for the maker of Marmite spread and Magnum ice cream, and as shoppers were beginning to put more items in their carts again.
Consequently, shares in Unilever rose 20 per cent between late January and mid-June, although they have tapered a little since. Starmer could be rewarded with a surge in consumer confidence and spending. How long any honeymoon lasts depends on policies such as taxation, particularly those affecting middle-class families, who should be the engine of spending but feel increasingly squeezed.
Labour’s landslide underlines the frustrations that many Britons have had with 14 years of Tory rule. It was marked initially by austerity, then a brief period of prosperity punctured by Brexit, followed by the pandemic. The soaring prices that ensued inflicted the worst squeeze on incomes in 40 years.
Drawing a line under this era could make British consumers feel more optimistic, as they did after Tony Blair’s landslide victory in May 1997. Despite voter turnout dropping to a 100-year low, the extent of the majority means that many people will be pleased with the outcome, while the prospect of a more stable five years ahead should provide further reassurance.
A spell of high temperatures — and England progressing in the men’s UEFA European Football Championship — could heighten the feel-good factor. Add the Paris Olympics and Wimbledon to the summer of sport and there could be an unleashing of pent-up demand.
When wet weather abated in May, British retail sales jumped at the strongest pace since January.
Any upturn this year may be too late for fashion retailers — they need clement conditions early in the season when their floaty dresses and fisherman’s sandals hit stores, which they enjoyed in 2023. Late warmth means consumers will likely buy in the summer sales or make do with last year’s apparel, given that the reprieve from rain might not last long.
But supermarkets could benefit from barbecues, and hospitality operators could see gains. Although pubs typically do better from the football than restaurants, a more settled outlook could encourage Brits to eat out a little more.
Like Schumacher, it also helps that Starmer is arriving in No. 10 Downing Street just as high inflation is working its way out of the system. Food prices rose 2.1per cent in June, the 16th consecutive month the annual increase has moderated, according to data provider Kantar. Overall, goods inflation was negative in May, according to the UK Office for National Statistics.
Household budgets are recovering with continued wage growth. Lower-paid Britons have seen their incomes rise by about 20 per cent over the past two years after increases in the National Living Wage.
And we are likely past the peak of the rate-hiking cycle, with traders looking for the first cut in interest rates for four years on Aug. 1. This may provide a psychological and real shot in the arm, especially in housing-related categories such as furniture.
That may explain why consumer confidence ticked up in June, with the closely watched measure of Britons’ willingness to make a major purchase also improving.
But as with 1997 — as well as after the David Cameron-Nick Clegg coalition in 2010 and the bounce after Boris Johnson led the Conservatives to their biggest victory since the days of Margaret Thatcher in December 2019 — optimism may be short-lived.
There is no magic bullet to fix Britain. Public finances remain strained, and unless Starmer can generate economic growth he will have to find other ways to prop them up.
The challenging fiscal backdrop likely requires further tax increases. Labour has ruled out raising income tax, national insurance and value-added tax (VAT). But that leaves plenty of other possibilities.
Since 1992, the most significant tax hikes have tended to be announced in the first official budget announcement, followed by more moderate increases thereafter, according to Bloomberg Economics.
If that happens in the autumn, then it could cast a shadow over what should otherwise be a sparklier Christmas than 2023, given that the cost-of-living crisis is easing, and comparisons with last year are undemanding.
Meanwhile, another potential drag on spending is the plan to make the private school sector pay 20 per cent VAT. If this is passed onto parents, those who stretch their budgets to pay for education will be even more squeezed. Although less than 7 per cent of UK children attend private schools, and not all of their parents will be struggling to cover the fees, some families will have to sacrifice spending on holidays and meals out to cope with the additional cost. Many of this cohort will also be grappling with higher mortgage costs.
One group that has picked up the slack is older Britons, many of whom have enjoyed a recovery in stock markets, with their savings finally paying a decent rate of interest, and inflation-related uplifts in their pensions. Any tinkering here could be another concern for consumer-facing businesses, particularly restaurants and tour operators, as so-called silver spenders splurge more on services than on things.
Schumacher was able to maintain Unilever’s momentum by announcing plans to spin off its ice-cream business, including Ben & Jerry’s, in March.
Rather than letting go of the frozen business, Starmer needs to heat up the UK economy. And a bit of warmth from the sun over the coming weeks would help too.