Everything from the latest opinion polls to the bookies odds points to a crushing defeat for the Conservatives at the next general election. However, if I were a betting man, I would put a few quid on Rishi Sunak remaining in Number 10.

For a start, the next election could be as late as January 2025. This would be five years from when the current Parliament first met in December 2019, plus the 25 working days for an election campaign.

Of course, it is never a good idea to ask people to vote in the depths of winter, so the election will surely be called sooner. But even May 2024 would leave a full year for the government to turn things around. If a week is a long time in politics, this is an eternity – though hopefully it will not feel like one.

This is where the performance of the economy is crucial. In normal times there is a decent correlation between consumer confidence and the UK government’s standing in the polls. Voters who are positive about their finances and who feel secure in their jobs are more likely to back the party in power. Studies in many other countries have also shown that stronger economic growth is typically reflected in a bigger share of the vote for the incumbent.

There is some evidence that this relationship may now be weaker. The former Governor of the Bank of England, Mervyn King, was right when he said in 2019 that the Brexit referendum was decided by ‘issues of identity and culture’, rather than by what people thought might happen to GDP. The next general election may swing on which party has the most attractive policies on the NHS, immigration, or climate change.

Nonetheless, most polling suggests that ‘the economy’ is still by far the most important issue facing the country – as it has been since the pandemic.

Some studies have also found that the link between a strengthening economy and support for those in power weakens over time. People might take better economic conditions for granted and be ready for a change of leadership, especially if the government looks tired and has been battered by scandals. Familiarity can indeed breed contempt.

But this may not work so powerfully against Rishi Sunak. The Conservative Party has been in power since 2010, but 42 year old Sunak did not enter parliament until 2015. He is still the ‘new boy’ on the block.

Significantly, his personal approval ratings are higher than that of his party, and he is neck and neck with Keir Starmer in the polls as the best candidate for Prime Minister. He also still has some more time to grow into his role.

And while the Conservative’s long record in government has hardly been great, voters are likely to give most weight to the most recent news.

Obviously, all this will count for nothing if the economy still stinks. Some of the recent headlines have been ugly. Many forecasters, including the OBR, OECD and IMF, have predicted that the UK economy will contract in 2023, and underperform its peers.

Inflation again surprised on the upside in March, with the consumer price measure of food prices up a staggering 19.1 per cent on the same month a year ago. Interest rates will probably rise further too.

Fortunately, there is already light at the end of the tunnel. Producer price inflation in the food sector has now been falling for six months and the UN index of global agricultural commodity prices has been dropping outright for a year. With the usual lags, this means that shop price inflation should also start to fall very soon. Energy price inflation will start to ease in April too.

Surveys of business and household sentiment have also turned the corner. In particular, the GfK measure of consumer confidence sustained its impressive recovery in April, with fewer worries about the outlook for personal finances.

I would pay more attention to these indicators than official projections which are already out of date. For example, the OBR’s March forecast assumed that the UK economy would contract by 0.4 per cent in the first quarter of the year. In fact, the latest data suggest that it expanded by about 0.2 per cent.

Similarly, for the IMF or OECD’s relatively gloomy forecasts to be right, the UK economy would have to collapse in the second half of the year, while others sail miraculously onwards.

It is therefore likely that we will see a raft of upward revisions to UK growth forecasts over the remainder of the year. Inflation is also still set to fall sharply. This should allow Sunak to say that he has delivered on two of his five targets, namely to ‘halve inflation’ and ‘to grow the economy’.

Admittedly, these targets are hardly ambitious. We can debate too whether the government has actually done anything meaningful to hit them. But there will be three positives.

First, the ‘mood music’ will be much less depressing. Conservative strategists should be able to shift the narrative and claim success in preventing the deep recession that many feared.

Second, there will be some tangible benefits. Low unemployment should continue to support consumer spending. Stronger public finances – at least relative to the OBR’s forecasts – will allow more room for pre-election tax cuts and other sweeteners.

Third, the onus will be back on Labour to say what they would do better and – just as importantly – how they would pay for it. Clumsy attack ads and carping during an economic crisis can only take you so far.

This could go either way. The opposition is making big strides here, helped by the government’s apparent enthusiasm for tax and spend and for more state intervention, and a readiness to adopt other policies originally proposed by Labour (such as energy price caps and windfall taxes).

Keir Starmer’s five pledges are certainly bolder than those of Rishi Sunak, including a Liz Truss-like commitment to secure the highest economic growth in the G7. The long run-up to the next election also gives Labour more time to build credibility.

My bet on the Conservatives would therefore only be a small one. But despite the latest polls, the prospect of an economic bounce should mean that there is still all to play for.

This piece was first published by the Daily Telegraph on 26 April 2023

• Applied economics
• Politics
• UK economy