Britain’s economic crisis worsens with rising inflation and inequality

A ‘No Entry’ line is seen closing part of Waterloo Station due to the National Railways strike, London, UK, June 21, 2022. /CFP

A ‘No Entry’ line is seen closing part of Waterloo Station due to the National Railways strike, London, UK, June 21, 2022. /CFP

Editor’s note: Azhar Azam works in a private organization as a market and business analyst, and writes on geopolitical issues and regional conflicts. The article reflects the views of the author and not necessarily those of CGTN.

Just a few months ago, the British economy was about to rebound strongly. Official figures from the UK’s Office for National Statistics (ONS) showed that after contracting 9.4% in 2020 due to the initial impact of the pandemic and public health measures, the product The country’s gross domestic (GDP) recorded a 7.5% increase in 2021, the largest annual increase since World War II.

But that “remarkable resilience” waned as Britain’s economy shrank 0.1% and 0.3% in March and April this year. This economic slowdown forced the Bank of England to raise interest rates for the fifth consecutive time to stem the trend of persistently high inflation. In May, the consumer price index hit a new 40-year high of 9.1% and deepened the cost of living crisis for many Britons who had to skip meals to cope with huge inflationary pressures.

London sinks into recession. Last month, UK central bank governor Andrew Bailey warned Britons to prepare for more severe inflation than other major economies. As in other advanced countries, the era of low and stable inflation is over in the UK and it will not return soon after a series of economic shocks related to COVID-19, the Russian-Ukrainian conflict and the the collapse of global supply chains.

There are several other factors such as labor shortages, the impact of Brexit on trade and declining productivity that have turned the UK economy into a crisis. Within the Group of Seven (G7), the UK labor force is experiencing the second biggest contraction, trade openness continues to decline to the greatest extent, and productivity and investment are lagging behind to other advanced economies.

Although the economy grew by 0.5% in May, inflation is expected to reach 11% later this year. This is more than five times the target rate of 2%, when household disposable income would be further reduced by rising energy prices in the fall. Any political power struggle could make matters worse for Britain’s economy and prove to be a “poisonous gift” for Britain’s next prime minister.

In its latest assessment, the International Monetary Fund (IMF) painted a bleak picture of the UK’s future economic prospects. Not only has the global financial regulator revised its forecast for UK GDP to 3.7% from 4.7% in January for 2022, it has almost halved the growth forecast from 2.3% to 1.2% for 2023, anticipating that the UK will sink to the bottom of the G7. league.

This was a significant change from the IMF, which in February welcomed Britain’s economic recovery while stressing the importance of addressing post-pandemic and post-Brexit structural issues such as additional investment in infrastructure. transportation and digital connectivity to address regional inequalities in the country. .

The UK is one of the most regionally unequal countries in the developed world. Much of the economic development and infrastructure spending has been concentrated in London and the South East, leaving the rest of the country lagging behind in everything from productivity to transport links. British Prime Minister Boris Johnson has promised to end the ‘North-South divide’ by ‘leveling up’, but the initiative is still on the drawing board as inflation and the cost of living crisis widened the regional disparity.

Petrol and diesel prices were posted in Bristol, UK on July 6, 2022. /CFP

Petrol and diesel prices were posted in Bristol, UK on July 6, 2022. / CFP

Ahead of the G20 finance ministers and central bank governors meeting in Bali, the Fund’s chief, Kristalina Georgieva, warned the world was facing a ‘darkening’ economic outlook and signaled a further decline in growth for 2022 and 2023 this month compared to 3.6% in April. She appeared to downplay the G7, which has been criticized for dividing the world and making token statements without resolving issues, and sought “new impetus” for G20-led global cooperation to ease the cost crisis. of life around the world.

Before COVID-19, it was estimated that more than 14.5 million people, or one in five people, including four million children in the UK, lived in poverty. As inequality and poverty weigh on economic growth and a higher cost of living threatens to push another 1.3 million Britons into absolute poverty, Downing Street should reorient its international approach and accelerate post- Brexit to strengthen economy, trade and investment with all international economies. to overcome burning national challenges.

China, being one of the world’s leading economies, has the ability to help the beleaguered UK manage these complex economic crises. Total two-way trade in goods and services between the two countries, according to the ONS, increased by 11.8% to reach £93 billion (about $111 billion) in 2021. Improved economic ties and trade could diversify this relationship to attract more Chinese investment to help Britain resolve regional disparities.

Last year, Johnson said China is “a gigantic part of our economic life and will be for a long time, for our lifetime.” After reversals of prejudice on Huawei and US-influenced nuclear power, the UK government pushed earlier this year for closer economic ties with the world’s second-largest economy by seeking to resume trade and financial talks suspended since 2018. But some Warmongering Tory MPs, vying for leadership, are trying to put those dialogues in limbo, raising concerns in the business community and seeking to take advantage of the world’s future biggest economy and biggest importer.

This naïve approach is unrealistic in a globalized and economically interdependent world where even the United States is holding “frank and substantive” trade talks with its “strategic competitor,” China, to ease inflationary pressures on Americans. At a time when fault lines are ill-exposed and the country fails to ‘level’ poor regions, the UK should quickly restore a balanced and mature relationship with Beijing and immediately engage China in economic negotiations. and constructive trade for the benefit of the Bretons.

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