LONDON — The last time Britain had double-digit inflation was in 1982, with Margaret Thatcher prime minister, the country about to go to war with Argentina over the Falkland Islands, nurses and miners Went on strike and Prince William was born a prince. Prince Charles and his wife Princess Diana.
The UK is in turmoil again this week, with inflation hitting 10.1% in July, a recession looming and the Conservative Party struggling with a hostile campaign to elect a new leader. As expected, if Liz Truss is elected next month, she will come to power during a period of economic stress similar to that faced by Thatcher.
Still, the multiple shocks facing the UK – including higher energy prices from the war in Ukraine, supply chain disruptions after the coronavirus pandemic, and the hollowing out of the UK labor market due to Brexit – are oddly enough for the prime minister Boris Johnson, seemingly disconnected from the succession race.
The UK is economically worse off than its main European neighbors, not to mention the United States, so the unbridled nature of the campaign is all the more impressive. Stagflation seems likely to haunt Johnson’s successor.
Foreign Affairs Minister Truss is sticking to an agenda focused on tax cuts, which could exacerbate rather than solve these problems. Her goal is to appeal to wealthy, older Conservatives who choose their leaders. This strategy allowed her to gain a so far unassailable lead over her opponent, former Treasury Secretary Rishi Sunak. Opinion polls of party members show Truss trailing Sunak by 22 to 38 percentage points.
Tim Bale, a professor of political science at Queen Mary University of London, said: “The whole campaign has been taking place in this bubble of unreality. He blames the press partly for the problem. but he said he was unable to identify how the candidates would deal with inflation.
“There’s also a degree of fatalism about this crisis,” Bale added. “This is due to external factors and in part to the Bank of England’s slow response.”
Analysts say the ambiguous nature of the debate also reflects the peculiarities of the UK political system. Only rank-and-file members of the Conservative Party can vote for the next leader, but the constituency is estimated to have a population of about 160,000.
Older, white and wealthier than most Britons, these voters are less vulnerable to the cost of living crisis than the general public. It’s more enticing than the harsh warning that the hatch needs to be busted out before the approaching storm.
Johnson is on vacation in Greece, George W. Bush summons Barack Obama during the 2008 presidential election, and John McCain visits the White House to discuss contingency plans to combat the financial crisis. .
Jonathan Portes, Professor of Economics and Public Policy at King’s College London, said: “Gordon Brown is the only one who seems to be taking this seriously.”
The former Labor prime minister, Brown, who led Britain’s response to the 2008 crisis, recently said Johnson and his two candidates should agree to an emergency budget to soften the blow of impending fuel price hikes. I wrote. Failure to do so “will drive millions of defenseless and innocent children and pensioners into a winter of extreme poverty,” he said.
Inflation data showed the UK was suffering from the “worst of both worlds”, according to Ports. The European Union announced Thursday that inflation in the 19 countries that use the euro rose to a record 8.9% in July. But it was lower in France, where the government caps fuel prices.
The UK also has a severe post-Corona labor market shortage plaguing the US, putting pressure on wages. For the UK, these shortages were exacerbated by Brexit, which reduced the influx of migrant workers from elsewhere in Europe.
Truss promised aid to those hit hard by the next domestic fuel price hike scheduled for October, but what such a package would look like remains to be elicited. She also raised the possibility of reviewing the Bank of England’s anti-inflation mandate. In recent days, she has been criticized for not acting quickly enough to stem skyrocketing prices.
Banks have recently raised interest rates sharply and are expected to double again over the next six months. Still, the bank expects inflation to continue to rise until peaking at 13.2% in October, but expects the economy to slip into a recession said to last until 2023 as the money supply tightens. There is
Snack has also argued for possible tax cuts, but argues that the government needs to bring inflation under control before the tax cuts can be passed. He accused his opponent of fairytale economics. A quick tax cut would stimulate commercial activity and offer the surest path out of economic turmoil, Mr Truss argues.
But economists warn that the tax cuts will put an additional strain on Britain’s public services, particularly the National Health Service, which is already fraying after the pandemic.
“In the absence of concrete measures to cut public spending and a presumed desire to manage the country’s finances responsibly, both Truss and Sunak have promised to cut taxes in the medium term. is difficult to achieve,” he said. Karl Emerson, deputy director of the Institute for Fiscal Studies, a research institute that just released a report on the deterioration of government finances.
Ms Truss was in Belfast on Wednesday when the new inflation rate was announced and vowed to pass trade legislation in Northern Ireland.
Aside from its implications for Northern Ireland, Brexit’s role in the UK’s predicament is also largely absent from the campaign. Both candidates are appealing to the Brexit faction of the Conservative Party, particularly Truss, who opposed his Brexit in his 2016 referendum but now shows proselytizing enthusiasm.
There is, in fact, a lively debate among economists about how much UK inflation can be blamed on Brexit. Mr Portes said that was not the main driver, but that worsening labor shortages, the declining value of the pound and higher import costs due to customs clearance “are increasing pressure on margins”.
U.S. economist Adam Posen, a former outside member of the Bank of England’s monetary policy committee, said in May that 80% of Britain’s inflation was largely due to the loss of immigrant labor from Europe, and Brexit’s impact. This week he backed up an offensive claim.
“Sadly, it turned out to be the opposite of what I and others expected,” Posen said.