Labour believes the argument that the cost of living is outpacing wage rises will still resonate with voters, even as the economy improves
Ed Miliband will on Wednesday attempt to galvanise Labour by stepping up his attack on the government over the "cost of living crisis", as the coalition basks in signs that the economy is experiencing a summer mini-boom.
After a series of criticisms from backbenchers who have questioned Labour's relative silence as economic data has steadily improved, Miliband will tour a market in Elephant and Castle, south London – his first public engagement in a fortnight – telling voters: "David Cameron is out of touch; you are out of pocket."
But with inflation sliding, and the housing market upturn starting to spread beyond London, George Osborne is expected to receive a fresh fillip early Wednesday from news of a renewed decline in unemployment.
Official figures on Tuesday showing that the inflation rate fell to 2.8% in July, from 2.9% a month earlier, on the consumer price index (CPI) targeted by the Bank of England, added fresh weight to the chancellor's argument that the recession-scarred UK is "out of intensive care", increasing the pressure on Labour to sharpen up its message on the recovery.
A spokeswoman for the Treasury said, "inflation is at nearly half of its peak of 5.2%. The economy is on the mend, but the government understands that times are tough for families." She added that the coalition is acutely conscious of the pressure on families' budgets, and has taken specific action, including increasing the personal tax allowance and freezing council tax, to ease the pain.
But prices are still rising much faster than wages, and Labour believes the argument that the cost of living is outpacing wage rises will continue to resonate with many voters, even as the economy improves.
Miliband steps back into the fray as ex-Labour MP Chris Mullin said the party should bring back "grown ups" such as ex-chancellor Alistair Darling, while Tony Blair's former spin chief Alastair Campbell said Labour had made a mistake by failing to defend Gordon Brown's economic record.
The Labour leader will repeat the party's claim that official figures show the average family is £1,350 worse off than when Cameron came to office – and contrast that with evidence of a sharp rise in bonuses in the financial sector.
Cathy Jamieson MP, Labour's economic secretary to the Treasury, responding to Tuesday's inflation figures, said: "David Cameron and George Osborne's economic policies have badly failed over the last three years and working people are paying a heavy price."
Miliband's Treasury team, under Balls, has cited a YouGov poll which has found that 81% believe that politicians who say household incomes have grown faster than price rises, as George Osborne claimed last month, are "out of touch". But they were stung by a Guardian/ICM poll on Tuesday showing that 40% of voters had confidence in the Tory chancellor and the prime minister's ability to handle the economy, up from just 28% in June. Shadow chancellor Ed Balls and Miliband were well behind on 24% despite enjoying a five-point jump in their own rating over the same period.
TUC general secretary Frances O'Grady said, "Britain's longest wage squeeze in over a century shows no sign of ending soon. With pay rises continuing to trail behind the cost of living it certainly doesn't feel like a recovery to most ordinary workers.
Official data on the housing market also published on Tuesday added to the picture of an economy that has been gathering steam since the start of the year – though a sharp rise in prices in London will increase fears that the government's policies may be stoking an unsustainable bubble.
House prices in the capital rose at 8.1% in the year to June, the fastest pace since November 2010, according to the Office for National Statistics, while across the country the rate of increase was a more modest 3.1%, up from 2.9% in May.
The West Midlands saw price growth of 3.1%, also the strongest since late 2010; but the cost of property is still falling in Scotland, Northern Ireland and Yorkshire and the Humber. Excluding London and the south-east, the ONS said the price rise in the year to June was just 1%.
George Osborne has faced criticism of his Help to Buy policy, announced in the budget, which has allowed purchasers of new-build homes to put down a deposit of just 5%, with the government offering an interest-free loan worth up to 20% of the purchase price to bridge the gap.
The communities secretary, Eric Pickles, defended the coalition's housing policies, meanwhile Wednesday, as he announced that more than 10,000 new homes have been reserved under the scheme since its launch.
"This government's package of measures to boost the housing market is working, with house-building and housing supply on the up," he said. A second and more controversial wave of Help to Buy, to be launched in January, will provide taxpayer-backed mortgage guarantees for properties worth up to £600,000.
City analysts will be watching Wednesday's unemployment figures particularly closely, after Mark Carney, the Bank of England's new governor, pledged to keep interest rates at their record low of 0.5% until the jobless rate dips below 7%.
The modest decline in inflation in July was good news for Carney. A reading above 3% – which some experts had expected a month ago – would have forced him to write an explanatory letter to the chancellor, justifying the Bank's policies.
Alan Clarke, of Scotiabank in London, said the monthly unemployment survey had now achieved "A-list celebrity status" for economists. He predicted that today's report would show the unemployment rate falling from 7.8% to 7.7%.
Howard Archer, of consultancy IHS Global Insight, said: "There were signs at the beginning of the year that the labour market was faltering; but in the last few months it seems to have picked up, which is in line with the idea that the economy is gathering momentum."
Minutes of the latest meeting of the Bank's rate-setting monetary policy committee meeting, also due to be released today, will show whether the governor managed to carry all of his eight colleagues with him in setting out his controversial new policy of "forward guidance".
Tuesday's inflation figures showed that the broader retail price index (RPI), the measure of inflation used to set some rail fares, was 3.1% in July, down from 3.3% a month earlier. This means some rail passengers now faces rises of more than 4% in the cost of a ticket in the new year.
Business groups welcomed the decline in inflation; but warned that there were still risks price pressures could tick higher.
"There is now greater hope that increases in inflation above the 3% mark will be avoided, but the situation remains uncertain and renewed surges in energy prices could push inflation up again," said David Kern, chief economist at the British Chambers of Commerce (BCC).
Some economists are now predicting that inflation could fall back to the target level of 2% by the end of the year, raising the prospect that real wages could start to rise for the first time since the start of the crisis. July's inflation fall was "likely to presage the start of a sustained drop", said Martin Beck at Capital Economics.