As Sunak Makes His Case for the Britons, the Economy May Disrupt It

Prime Minister Rishi Sunak is hoping to stay in office by marketing himself as a reformer of Britain’s fractured country. On Wednesday, he found a faint sign that the renovation work is growing: the government announced this Inflation in Britain in June was 7.9 percentlast month’s decline.

But the number is still higher than that of Britain’s neighboring countries in Europe and twice that of the United States. And this is one of the economic problems – from debt to unemployment to high growth – that is troubling Mr Sunak as he says his Conservative Party, in government for the past 13 years, should be there. after the election they have to stop by January 2025.

The Conservatives face their first political test on Thursday, with three by-elections, special elections to fill parliamentary seats vacated by Tory lawmakers. The party is gearing up for a long day.

Tim Bale, a professor of politics at Queen Mary University of London, said: “They are running out.” “These by-elections could be a referendum on the government, and they could lose all three.”

Mr Sunak, a former head of the Exchequer who previously worked at Goldman Sachs, developed a reputation as a technocrat and problem solver. He has abandoned the experiments of his predecessor, Liz Truss, and the cake-and-eat style of his predecessor, Boris Johnson.

But Mr. Sunak’s return to the economy did not revive Britain’s growth. Instead, inflation is forcing the Bank of England to raise interest rates aggressively to prevent inflation. A tight monetary policy threatens to bring the economy, which is already on the upswing, down. And it is bringing pain to millions of Britons who are facing rising rents and high prices on their loans.

Economists agree that inflation will continue to decline over the next six months, perhaps enough to meet Mr. Sunak will reduce that rate by half to 5.2 percent by the end of the year. But some of Britain’s problems – the growth of anemia, unemployment, understaffing, and the collapse of the National Health Service – cannot be fixed in time to change everything before they face the voters.

“Slow growth and low growth make economic policy difficult,” said Mahmood Pradhan, global head of finance at Amundi, the wealth manager. “It reduces the financial position. It is very difficult to live in. “

Due to the state’s budget deficit, Mr. Sunak cannot afford to spend more to raise wages for striking doctors or railroad workers, nor can he cut taxes for voters. As things stand, he is in danger of missing one of his five promises: reducing the national debt. The government debt has increased more than 100 percent of the total household income for the first time since 1961, according to the latest data.

For two years, the government has suspended income taxes instead of raising them with inflation, making prices more affordable. As a result, Mr. Sunak finds himself in an unsurprising situation: a free-market conservative heading into the election with a government.t is bringing the largest tax on voters since World War II.

Prosecutors argue that he has no one to blame but himself. Mr Sunak supported the economic downturn of the Conservative-led government of David Cameron and his chancellor, George Osborne, which has crippled Britain’s economy and undermined its public sector. And he promoted Brexit, which cut off trade with the European Union, threatened the economy and increased unemployment.

“They are unlikely to be directly linked to Cameron-Osborne austerity and Johnsonian hard Brexit,” said Jonathan Portes, professor of economics and public policy at Kings College London. “A lot of other Tories can say they haven’t bought anything. It’s not Sunak.”

This week’s special election proves that Sunak is in trouble. One seat belonged to Mr. Johnson, who resigned from the House of Commons after a committee recommended that he be suspended for misleading MPs about partying during the coronavirus lockdown. One was held by a friend of Mr. Johnson’s, who also quit, and the third is a law enforcement officer who resigned after being accused of drug use and promiscuity.

While Mr Johnson’s tainted legacy and the Conservative Party’s disinformation will play a role in the race, analysts say the cost of living will be a major theme. Professor Bale said that few governments win elections when real wages are falling, as is the case in Britain. In the latest polls, the opposition Labor Party leads the Conservatives by almost 20 percent.

The prospect of a major defeat has led to Mr Sunak being pressured by Tory backbenchers to offer support to voters in the form of tax cuts or help to pay his debts. Many experts expect, however, that they will promise to reduce the tax rate next spring, to be postponed until after the election.

As Mr Sunak likes to remind people, not all of Britain’s problems are unique or self-inflicted. Like many other countries, it faced domestic problems after the end of the pandemic lockdown, due to the increase in food prices and due to the increase in energy costs after Russia’s annexation of Ukraine.

However, the main interest rate in Britain – which does not include energy and food prices and is a measure of domestic pressure – has remained high at 6.9 percent, compared to 4.8 percent in the United States and 5.4 percent in the eurozone.

“This shows that inflation is more stable than in other countries,” said Kristin Forbes, a professor of global management and economics at the Massachusetts Institute of Technology, and a former member of the Bank of England’s policymaking committee. .

Britain, he said, was faced with the tragedy of being affected by rising power, like its European neighbours, and pressure at home due to a difficult labor market, like the United States.

“The UK has had a harder time than other countries, because it has been hit harder by exposures that were bigger than what happened in other countries,” Professor Forbes said.

But there are other problems that are well known in Britain. Unlike most countries, Britain still has more people in the workforce than before the pandemic. Many say they are unable to work due to long-term illness, a growing problem with the NHS. With more jobs, wages are rising faster, which increases inflation.

Mr Sunak has proposed a 5 to 7 per cent pay rise for public sector workers to end strikes that have closed schools across Britain and halted health services. But this should not end the labor unrest.

Britain has avoided recession so far, much to the surprise of economists. But that confidence may be faltering, as people cut back on spending to pay off their rising mortgages. Already, around 4.5 million households have had to swallow higher interest rates since the Bank of England started raising interest rates in December 2021. The rest, another 4 million, will be affected by higher rates at the end of 2026.

Like other western leaders, Mr. Sunak may be from his hands. Last month, the Bank of England, frustrated by inflation, unexpectedly raised interest rates by half a percentage point, to five percent. Traders are betting that rates will rise sharply, to around 5.8 percent by the end of the year – meaning a series of increases that could mean higher costs for businesses and households and hurt economic growth.

“As we see more tightening, the risk of recession increases,” said Mr. Pradhan, a former deputy director of the International Monetary Fund. “It won’t take much for the UK economy to come crashing down.”

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