ANDREW NEIL: Ignore all the Dismal Jimmies (led by the BBC) – the economy is looking up … but can Rishi convince voters before it’s too late?

For reasons I’ve never quite understood we often seem awash with self-hating Brits who revel in bad news about our country and love to do it down.

Their gloomy musings used to be confined to writing letters in green ink to newspaper editors and competing to be the local pub bore. But social media has amplified their reach and enhanced their voice.

Take what happened when the inflation rate for December was published earlier this month showing that, rather than slipping a further notch (as expected) to 3.8 per cent from the 3.9 per cent it fell to in November, it actually ticked up a tad to 4 per cent.

The usual Dismal Jimmies (led, of course, by the BBC) piled in, gleefully claiming this was further proof the UK economy was a basket case and that Prime Minister Rishi Sunak’s claim to have inflation firmly on a downward trajectory was bogus.

All this based on a 0.2 percentage point difference between expectations and reality in one month’s inflation figures! The gloomsters clearly haven’t been told that economists only use decimal points in their calculations and forecasts to show they have a sense of humour.

In fact, there’s good reason to believe December was merely a blip and that inflation will continue to fall as 2024 progresses. A coterie of well-regarded City economists think it could be as low as 2 per cent by Spring, taking it back down to the Bank of England’s inflation target, as the rise in food and energy prices continues to abate.

That might be a bit optimistic but I do think there’s a strong chance there will be further substantial falls in the months ahead taking it close to 2 per cent by the summer, with beneficial consequences for prices, living standards and economic growth — and maybe even the Tory Government. I say that without in any way being starry-eyed about the UK economy. Its performance since the pandemic has not been as bad as the naysayers at home and abroad predicted. But it’s still been pretty dismal.

Economic growth has been anaemic — last year we wallowed in stagnation — and families have been hurt by the squeeze on living standards.

But, sad to relate, low growth has become a hallmark of major European economies these days and one of the ironies of post-Brexit Britain is that the longer it is outside the European Union the more it underperforms like a typical European economy, with high public spending, penal taxes, intrusive regulation and sluggish growth.

But there are reasons to be, if not exactly cheerful, then at least more hopeful that 2024 will be better than 2023. The latest measures of consumer confidence are at a two-year high. Households are more optimistic about their finances as the worst of the cost-of-living crisis passes. The private sector is expanding strongly, adding new jobs after four months of shedding them.

Those who eagerly predicted a recession have fallen silent since it looks like we’ll dodge one.

Indeed the Eurozone is now at more risk of shrinking, dragged down by an ailing German economy, than the UK.

Wages are rising at 6.5 per cent in cash terms, well above the rate of inflation. That cannot be sustained if we want inflation not just to come down but to stay down. However, in the short term it’s a welcome boost to battered living standards. Unemployment is low, overall employment is rising and job vacancies, though down a bit, are still over 900,000, which is 130,000 above the pre-pandemic level.

There is work out there for folks who want it. Even last year’s rash of strikes has abated (November had the fewest days lost to industrial action for 18 months) with the junior doctors, radicalised by a Left-wing cabal, one of the few groups still intent on disruption.

Then there’s the growing prospect of cuts in interest rates. The Bank of England is still holding out against them but that will change when inflation starts to hover around 2 per cent.

It’s pretty certain that rates have now peaked at their current 5.25 per cent and the money markets are now pricing cuts this year that could see the main benchmark rate fall to 4 per cent by the end of the year — and closer to 3 per cent in 2025.

The U.S. Federal Reserve will certainly cut rates this year and so will the European Central Bank. Our own central bank will soon find falling rates are the norm for 2024. The pressure on borrowers will recede and lower mortgage rates will beckon.

Far from being stuck in a doom loop there’s a better chance the economy will benefit from a virtuous circle. Lower interest rates in the debt markets — where the Government borrows to finance its endless budget deficits — are already reducing the cost of servicing the national debt (now close to 100 per cent of our GDP). That, plus the end of blanket energy subsidies means Government borrowing last month, at £7.8 billion, was lower than expected and the lowest December borrowing since 2019. The Government will now borrow less in the current financial year (2023/24) than the Office for Budget Responsibility was predicting only last November (but, then, the OBR has a habit of being wrong about such matters — it recently forecast we’d borrow £14 billion in December).

All this — plus buoyant tax revenues — is giving the Chancellor headroom for decent tax cuts in the March Budget. Some estimates suggest it could be as much as £20 billion, which is a lot more than looked possible even a few months ago.

But £20 billion doesn’t get you much these days. A one penny cut in the basic rate of income tax costs £7 billion. Freezing fuel duties again (they haven’t been raised since 2011) costs another £6 billion. You’ve soon spent the £20 billion without putting that much back into people’s pockets.

Even so, falling inflation, growing consumer confidence, a return to rising living standards, cuts in interest rates and lower taxes, which raise take-home pay, will together amount to a pretty decent boost to the economy.

We’re not exactly talking boom times here. But last year the economy barely grew at all. This year it could manage more than 1 per cent, with the growth rate picking up speed as the autumn and the election approach.

That’s certainly what the Sunak Government should be aiming for: a sense that the worst is over, growth is returning and living standards are rising once more.

It’s certainly the Tories’ best hope. In fact, it’s probably their only hope, if not of winning the election then at least limiting the scale of a Labour victory.

But, having just spent a couple of weeks in America, I bring a sobering transatlantic warning for the Government. President Joe Biden has presided over a far more vigorous economic recovery from the pandemic than PM Sunak.

The U.S. economy grew by a healthy 3 per cent last year (the fastest in the G7 group of major market economies), inflation has come down faster and further than in Britain and households are feeling flush enough again to spend. The American economy is now 7 per cent bigger than it was on the eve of the pandemic whereas we have grown by only 1.4 per cent, a lot more than Germany (0.3 per cent) but less than France (1.7 per cent).

Yet Biden is getting very little credit for this relatively impressive performance. Why? Because the squeeze on living standards has cast a long shadow.

People are still bitter about how tough it was and, though inflation has tumbled, prices are still rising (just at a lower rate). Food at the supermarket and petrol at the pump is still more expensive than when Biden came to power in 2021.

It was only at the start of this year that surveys of American consumers started to show that confidence was returning robustly and that the state of the economy and their own personal financial circumstances were better than they had feared.

Biden’s re-election strategists realise these ‘good feelings’ need to grow if he’s to beat Donald Trump in November and worry they’re running out of time to change perceptions.

Sunak, of course, is running out of time too — and has nothing like the American President’s economic record to boast about. It will be much more of a struggle for him to convince voters by the autumn that we’ve turned the corner than it will be for Biden.

Yet that is what Sunak must do if he is to have even an outside chance of staying in 10 Downing Street. Between now and October, pretty much nothing else should command his attention if he wants to survive in office.