With the unofficial starting gun for the 7 May General Election already a distant echo, it is becoming increasingly clear that the likelihood of any party gaining an overall majority in the House of Commons is low.
This partly reflects the fact that the two main protagonists are running side-by-side in the opinion polls. That in itself is not unusual, but what is different this time around is that party support has never been so fragmented. The data suggests that around one-third of all voters are likely to look beyond Labour or Conservative at the polling booths. Ukip currently lead the pack of alternatives with its opinion-poll share climbing from around 5 per cent in 2012, to 16 per cent today. The Liberal Democrats are at around 8 per cent compared to 23 per cent at the 2010 election.
If there is a hung parliament then, just as in 2010, it is likely to be the party with the largest number of seats that gets first dibs at forming a coalition government. The Conservatives have several factors in their favour. The recent economic recovery has cemented their lead among the electorate for economic competence and Mr Cameron will enjoy an election during which petrol prices could be as low as £1 per litre. In addition, Ukip supporters in seats that Ukip cannot win seem more likely to switch to the Tories than Labour, while Labour look set to lose a significant number of seats in Scotland to the SNP.
On the other hand, Labour strategists will be counting on a series of strong performances by Ed Miliband in the pre-election TV debates to alleviate fears that he is an unsuitable tenant for Downing Street. The polls suggest that the party will benefit strongly from any collapse in the Liberal Democrat vote while the Shadow Chancellor will counter-punch with George Osborne’s package of swinging, post-election cuts to public spending. Our weak infrastructure, over-reliance on flimsy financial alchemy, rising inequality, low productivity and inability to significantly diversify our exports towards the fastest growing global economies could prove to be telling blows.
And what can we expect from Ukip? Despite their recent polling advances it is worth noting that they only have two MPs, both of whom won their seats in by-elections which often revert to more traditional patterns at a General Election. Moreover, their ostensibly broad-based appeal means that they do not appear to have a group of rock-solid constituencies where victory is virtually guaranteed. Thus even a 20 per cent share of the vote might not translate into a significant number of seats in Westminster.
But Nigel Farage can afford to smirk. Ukip have already secured a significant victory in forcing the Conservatives into promising to hold a referendum on EU membership by 2018 and it will be no surprise if the other main parties follow suit. If Mr Farage was to find himself holding a make-or-break set of constituencies on the morning of 8 May who knows what else he could extract as the price for his support?
Anyway, regardless of the political backdrop, the key economic item on the domestic agenda for 2015 is whether the Bank of England will raise it’s policy rate, which has stood at 0.5 per cent for over five years.
With inflation well below the BoE’s target of 2 per cent, the case for an increase might seem non-existent. That would be good news for those with a variable or tracker-rate mortgage and non-fixed rate debts such as a credit cards, but less welcome for those who rely on the interest on their savings to help make ends meet.
However, the key point is that the Bank of England (BoE) has to predict how inflation is likely to evolve over the next few years. The current bout of low inflation could quickly unwind if unemployment continues to fall. If employers are forced to pay more to attract and retain staff, they will only pass extra costs onto consumers in the form of higher prices. At the moment, a minority of the nine members of the Monetary Policy Committee (MPC) – who set the policy rate each month – have voted for an immediate increase. But the nature of the exercise means that the MPC should not wait until inflation picks up strongly before acting. Irrespective of who gets hold of the keys to No. 10 in May, people should expect to be spending more on servicing their debts by the end of the year.