Much of the world is reeling from high inflation and sluggish economic growth, triggered in part by the pandemic, and the energy and food crises that Russia’s war against Ukraine has exacerbated.
However, some countries are doing worse. Britain is especially vulnerable after Brexit. It is isolated from its erstwhile European partners, its European imports and exports subject to vast amounts of paperwork, tariffs and inspections, and already suffering a rolling political upheaval — Boris Johnson is the third prime minister since the Brexit vote to be undone by Conservative Party parliamentary colleagues revolting against their political leaders, and, at the same time, Britain is now facing fierce economic headwinds.
The U.K.’s current rate of inflation is 9.4 percent; and housing prices, food prices, and fuel costs are all rising at far greater rates than this. Experts believe that inflation has peaked in the United States, but this is not the case in the United Kingdom. by the start of 2023, inflation in the U.K. will hit an unprecedented 15 percent.
In part this inflation spiral is being worsened by a weakening pound — the British currency is currently worth Only $1.22, a mere 15 percent below its peak over the past year, and only about a quarter off where it was just before the Brexit vote. British consumers are currently suffering a major hit because oil is priced using dollars. drivers are paying close to $9 per gallon in the U.K.This is more that twice the average price of U.S. goods and services. more than what consumers in every country within the EU except Finland are paying.
If inflation of even 15 percent occurs, the country, already in trouble, will be worse off. summer of industrial actions across a wide range of industries — a labor rebellion unlike anything seen since the 1970s — will likely experience even more strikes and wildcat walkouts as hard-hit workers seek to recoup a standard of living currently being ravaged by inflation.
The International Monetary Fund, (IMF), now predicts that Britain will have the lowest economic growth of all the G7 nations in 2023, at a mere 0.5 percent. For the many millions of British families already living on the economic margins, a prolonged period of stagflation — low growth combined with high inflation, which plagued many countries in the 1970s — could prove disastrous.
The U.K. is the world’s fifth-largest economy, but it also has a peculiarly skewed income distribution. It currently has historically low levels of unemploymentIt also has higher income inequality than the EU as demonstrated by a Gini-coefficient number — a measure for inequality — higher than most members of the EU (though still considerably lower than the U.S.’s) and low wages for a significant proportion of the workforce. The median wage in the country is just shy of £32,000At the current exchange rate, it is less than $40,000 per annum. This contrasts with a median wage of over $45,000 in the U.S.It also places the U.K.’s median wage below that in Germany, France and the Scandinavian countriesIts. median income across the entire population behind Canada, Australia, and a slew of other wealthy countries.
As poverty has increased in the U.K. over the past few years, so have the number of people using food pantries has ballooned. Depending on the measure used, between one in six and one in five Brits now live in poverty.
The U.K. isn’t alone, of course, in being vulnerable to the economic aftereffects of COVID-19; or to the huge energy price shocks, and other collateral economic damage, unleashed by Putin’s war in Ukraine and by the resulting sanctions against Russia. The EU, which relies heavily on gas from Russia, is also suffering huge price increases, and shortfalls in natural gases (according to the IMF). natural gas prices in the bloc have increased 700 percentThe past year has been a difficult one. The EU approved a plan for each state recently because the Germans and other Europeans are so concerned reduce gas consumption by 15 percent. For this winter, rationing across the bloc is possible. But, because of the depth of poverty in the U.K., and the vulnerability of the British economy in the Brexit era, as well as its newfound lack of access to common pools of EU funding, the U.K.’s population is particularly at risk of being left to fend largely for themselves as energy prices skyrocket.
For the past three years, the U.K.’s energy regulatory agency, Ofgem, has imposed a kilowatt hour price capInformation about what energy companies can charge. Although the system was designed to protect consumers from price gouging it is now in great stress. Since February, prices on the wholesale market have risen dramatically. Many providers, who rely on foreign natural gas supplies, have either gone out of business or relied on government bailouts. Ofgem also has to raise the cap and then raise it again in order to keep up to date with a rapidly changing market. This causes huge increases in what consumers pay every few month.
Last year, a typical family’s energy bill was capped at just over £1,200. It was already this high by the spring of 2011. risen to over £2,000. After recent Ofgem price cap adjustments, this bill will rise to $1,023 by January 2023. more than £4,200.The latest predictions suggest that it will be well by the middle 2023. north of £5,000.
So far, the government’s response has been on the inadequate side; it has approved a £15 billion subsidy package for consumers’ energy. That sounds large, but it ultimately only translates to £400 per family, which is barely 10 percent of the additional costs faced by U.K. consumers if the price cap does indeed surge to above £5,000 from its 2021 level of £1,200.
Many opposition politicians as well as frontline anti poverty charities are warning that the country faces an unprecedented crisis. With millions of families in deep poverty due to soaring heating bills, the government must immediately mobilize its full power to combat this emerging disaster. Yet, preoccupied by the leadership contest unleashed by Boris Johnson’s political demise, ideologically hostile to expanding the social safety net, and facing the very real prospect of rolling power blackoutsThe following winter’s coldest days will see the need for the Conservative government has, so far, been unwilling to provide meaningful additional anti-poverty assistance. Workers are now preparing for strikes in major industries to protect themselves from the crisis.
The Labour Party hasn’t exactly been chomping at the bit to support workers in this round of conflicts, however. Labour, under its leader, Sir Keir Starmer, opposed the recent rail strikes, and even punished some of its spokespeople for joining their picket lines. Starmer has also been focused, recent speeches– Fair growth, emphasis on redistributive taxation and spending policies, as well as large-scale green technology investments. Other opposition leaders, such as the Scottish National Party’s Nichola Sturgeon, have joined Labour in calling for energy companies to be subjected to windfall taxesThat could be used to pay for energy price rebates to consumers.
However, the Conservative government has remained firm against redistributive policies so far.
The result of this inaction isn’t pretty. Six years after the Brexit vote, Britain is in a state of disarray. Despite low unemployment levels, the economy is increasingly looking like a house of cards. Low unemployment is not translating into low poverty rates. There are many other indicators that the country is in danger of falling into crisis. The delays at its airports have led to a real risk for years of stagflation. That hot mess may well, ultimately, be outgoing Prime Minister Boris Johnson’s most durable legacy.