UK PM: Boris Johnson is handing his successor an economic ‘disaster’

news7f09/04/2022

1 4 minutes read

UK PM: Boris Johnson is handing his successor an economic 'disaster'

For months, the UK has endured a leadership vacuum as the country slides into recession and a humanitarian crisis caused by soaring energy bills.

Ever since Boris Johnson announced he would leave the office in julygrowth prospects have weakened. Annual inflation is run above 10% when food and fuel prices skyrocketed. Frustration at the rising cost of living has left hundreds of thousands of workers working at ports, trains and mailrooms. strike. The pound just recorded its worst month since the aftermath of the 2016 Brexit referendum, hitting its lowest level against the US dollar in more than two years.

“It’s just one hit after another,” said Martin McTague, head of the UK’s Federation of Small Businesses. “I’m afraid I can’t find any good news.”

The situation could get much worse before it gets better. The Bank of England predicts that inflation will rise to 13% as the energy crisis intensifies. Citigroup Estimates UK Inflation can peak at 18% in early 2023, while Goldman Sachs warned it could hit 22% if natural gas prices “remain bullish at current levels.”

The candidates to succeed Johnson – current secretary of state Liz Truss and former finance minister Rishi Sunak – face calls announcing a dramatic intervention as soon as one their became the country’s fourth Conservative Party leader in a decade.

The most pressing issue will be dealing with skyrocketing energy costs, which could lead to a wave of business closures and force millions of people to choose between putting food on the table and heating their homes for a while. this winter. Experts have warned that people will become poor and deaths from cold weather will increase unless something is done quickly.

Jonathan Neame, who runs Shepherd Neame, Britain’s oldest brewer, said: “Everybody assumes that there will be a quick and definitive announcement bringing this matter to the premises or at least providing it. give everyone peace of mind. “Otherwise, that person will be under a lot of pressure.”

An energy ‘catastrophe’

Household energy bills will rise 80% to an average of £3,549 ($4,106) a year from October. Analysts say a cap on household prices could rose to over £5,000 ($5,785) in January and rose above £6,000 in April ($6,942).

& # 39; Starve or freeze to death & # 39 ;: Millions of elderly Britons fear a grim choice this winter as costs soar

As people are forced to reevaluate their budgets, the post-Covid-19 lockdown consumption boom is dissipating rapidly. The Bank of England has warned the UK economy will fall into recession in the coming months.

Ben Zaranko, senior research economist at the Institute of Fiscal Studies, said: “The main challenge posed by the energy price hike is energy-intensive households – and especially the poor. than – will really struggle to make ends meet.” “It will mean really big cuts in other areas of spending.”

Meanwhile, Neame, whose portfolio includes around 300 pubs across southern England, said business owners were panicking. They’re getting crazy numbers quoted for early-year utility bills, if they can find a supplier. Nick Mackenzie, the head of pub chain Greene King, says that one location it works with its energy cost report has up 33,000 pounds ($38,167) a year.

“It’s been really hard on a lot of businesses, especially those that have come to Covid in a weakened state,” McTague said. “They are currently struggling to deal with a once-in-a-lifetime disaster.”

A collapse of the pound could exacerbate problems, making imports of energy and other goods more expensive, driving inflation even higher.

Overlapping crises

That’s not the only reason business owners and investors are increasingly worried. While vacancies decreased between May and July, they still 60% above their pre-pandemic levels. Finding workers to fill open roles has been a particular challenge in the UK since the country voted to leave the European Union. Around 317,000 EU citizens will live in the UK in 2021 less than in 2019, according to National Statistics Office.

A flyer is displayed outside Victoria Underground Station in London on August 19, warning the public of planned strike actions.

Brexit is also disrupting trade, especially with the European Union, the UK’s largest trading partner. Exports and imports will about 15% lower The Office for Budget Responsibility has predicted in the long run what they might happen if the UK stays in the EU.

Dean Turner, UK economist at UBS, said the new prime minister must try to make the most of the country’s standing without creating further disruption. However, hardline British lawmakers are still pushing ignored a key part of the Brexit deal Johnson signed with the European Union, which could eventually spark a trade war with the UK’s biggest export market.

“Brexit happened. How it is, we all have our own opinion about it,” Turner said. “But we have to work on it to make it better for us, and I’m just struggling to see if there’s any incentive to do that.”

There is no easy solution

Truss, who is expected to take the reins from Johnson after his government collapsed due to a pile of scandals earlier this summer, has vowed to jump-start the economy by cutting taxes. But many economists fear this approach could raise inflation and hurt fragile public finances, while failing to get money into the pockets of those who need it most.

“Benefits of cutting [taxes] Jonathan Marshall, senior economist at the Resolution Foundation, said the majority would go to people who pay more taxes, often those with more money.

There is no way for the state to avoid paying huge sums to deal with the energy situation this winter, but targeted measures will be needed to avoid waste. Freezing gas and electricity prices over the next two winters could cost the government more than 100 billion pounds ($116 billion), according to researchers at the Institute of Government.

“Energy is expensive, gas is expensive,” Marshall said. “To avoid people freezing to death in their homes, that needs to be paid. But the state doesn’t need to pay those who can afford it.”

Foreign Secretary and Conservative Party leader hopeful Liz Truss speaks on stage on August 23 in Birmingham, England.

There are also questions about how the incoming government will be capable of large-scale economic intervention, especially if cutting taxes – and thus government revenue – is a priority.

UK Government usury to provide support during the coronavirus lockdown. The country’s debts are now almost 100% of its gross domestic product. When interest rates are at their lowest and access to cash is cheap, this shouldn’t be a big deal.

But that is no longer the case. The Bank of England has aggressively raised interest rates as it tries to contain inflation. That will make it increasingly expensive for the government to repay the debt. The UK has also issued a large number of inflation-related bonds, adding to its vulnerability.

“It’s almost a perfect clutch of challenges that put the public finances at risk in a way they haven’t been in recent times,” said IFS’ Zaranko.

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