The next government will have a better economic legacy than gloomy forecasts suggest, says HAMISH MCRAE

Share prices finally seem to be getting the message that Britain is not such a basket case after all.

All it took for the FTSE 100 index to rise a few hundred points last week were decent inflation figures and the Bank of England’s signal that interest rates should come down by the summer. Anyone who read the right newspapers would have known this anyway – so why the surprise?

There have been many other positive indicators about the economy, including an upturn in the CBI Industrial Trends Survey, strong purchasing managers’ indices, a marked rebound in house prices and so on.

But for some reason many were unwilling to accept that a change had actually been made. Anyone who believed the gloomy stories will have missed quite a rally.

There is a broader point here. It seems that the next government, whoever forms it, seems likely to have a much better legacy than seemed likely a few weeks ago. The forecasts are in line with the improving inflation outlook, but do not yet reflect the likelihood of faster growth. If that does indeed happen, many other concerns, especially the debt burden, will become much more manageable.

The need for growth was the central theme of Rachel Reeves’ Mais Lecture in the City last week. This is a big problem, one of the set pieces where the Shadow Chancellors can set up their stall: the policies they think will improve the performance of the economy.

I went to watch it, and it was a solid performance: she read the teleprompter expertly and responded to questions with grace and humor – including one about the hostile reception of her words by the Unite union.

As for the content, it was a bit of the kitchen sink. Everything was thrown into it. She compared the current sense of despair about the economy to that of 1979, the year she was born, although unsurprisingly the Tories had the wrong solutions to the problems.

But that is absurd to anyone who remembers the chaos of the Winter of Discontent, or even that rise in inflation. The consumer price index (CPI) rose dramatically through 1979, peaking at 17.8 percent the following spring. The Bank of England’s interest rate was 12 percent on election day in May and rose to 17 percent in November.

We have made a firm commitment to be fiscally responsible, repeating Gordon Brown’s rule to only borrow for investment, and the current government’s target for public debt to be as a percentage of GDP by the end of parliament decreased.

She was very clear that growth is the only way forward if public services are to be maintained or improved, and that makes sense. The big idea of ​​how to do that, apart from the usual stuff about more investment, was to shake up the planning laws. That also makes sense. If you believe the official forecasts that the population, currently 68 million, will exceed 71 million by 2028, we will have to build many more houses.

There was one real concern for business: stricter labor laws. Many business leaders will share the views of Alex Baldock, the head of Currys. Interestingly, Reeves tried to sell the plans as a boost to labor mobility: better job protection would encourage workers to change employers. Almost as an aside, she said that they would not do anything that would harm our flexible labor market. We will see.

If she does indeed become the next Chancellor, we must all be aware that it is what politicians do that matters most, not what they say. Those of us with long enough memories will remember Gordon Brown going on about prudence. Then in 2010, Labor left the coalition with a budget deficit of 11 percent of GDP.

But if it is correct that the next government’s legacy will not be too bad, the reset of global opinion about Britain will be strong and powerful. So my rather ambitious year-end predictions that the Footsie would hit 8,500 and the pound would hit $1.40 by 2024 may not seem so irrational after all.