Prime Minister Rishi Sunak marked 100 days in office last month. The International Monetary Fund and UK economists predicted that the UK economy would continue to shrink, despite the PM’s best efforts to stabilize the country’s markets.
The same report predicted that China and India’s economies would account for more than half of GDP growth and stated that the UK would be the only country with an economy in recession this year. Experts expect that there will be a 0.06% overall reduction in the UK economy this year, and various cabinet members are citing several reasons for the shrinkage.
In February, their independent Office Of Budget Responsibility warned that the recession would last at least through 2023. The UK’s economic situation is deteriorating over many factors, including the increased price of heating, gas, and oil due to Russia’s invasion of Ukraine, the fallout from Brexit, and the fact that the country’s economy never quite recovered after Covid-19 shutdowns.
Additionally, annual inflation hit 11.1% in October and stayed at 10.5% in December, the highest in four decades. It is important to note that the overall GDP increased by 4% in 2022. However, the UK remains the only G-7 country not to recover its output after the pandemic fully.
While Sunak blames outside forces like the Russian invasion, other experts point the finger at Brexit, which has caused much lower trade exports with the rest of Europe. The British PM focuses on expanding trade with other countries, including India. Over the last year, the UK and India have had six rounds of talking over trade and investment agreements that would boost trade by billions of dollars in both countries. While this much-needed trade agreement will help boost the economy overall, the UK has a long way to go before the government can quell its economic woes.
As with any recession, unemployment is up, and so is inflation, further infuriating labourers, who have already organized dozens of strikes – which conservatives in the government blame for some of the economic stagnation. According to the Office for National Statistics (ONS), the UK recorded the highest number of working days lost in over 30 years in 2022. Transportation, teaching, and healthcare industries have been the most affected. With inflation continuing to rise, workers demand better conditions and higher pay. While some contracts have been negotiated, the strikes will continue as the Prime Minister and this government refuse to budge on pay raises in the public sector. Earlier in February, over half a million teachers, train drivers, and other civil servants organized a walkout, the largest coordinated labour strike in a decade.
As the labour unions persist, members of Sunak’s own party immediately proposed a round of tax cuts, which they promise will stimulate the economy, especially job growth. Sunak has so far refused either party, saying that raising pay for workers will cause inflation to rise and that the “best tax cut right now is a cut in inflation.”
As the workers who have jobs walk out due to economic inequality, employment is falling across the private and public sectors, which economists predict will continue into 2023. This creates its own concerns. As residents fail to believe in the country’s economy, the black market economy always sees a boost. Currently, the UK is already dealing with the black gambling market. Numerous offshore casino sites that aren’t under UK regulations and therefore, not a part of GamStop, and are currently not being taxed. Increasing illegal goods/services and off-the-books jobs is another worry for lawmakers as small businesses try to avoid taxation. According to a report published by the Institute of Economic Affairs (IEA), these black market businesses cost the UK over 150 billion euros every day, says a report published by the Institute of Economic Affairs (IEA). Of course, this is a problem all over the EU, where over 30 million people work or run businesses without paying taxes.
The rising cost of imports, like food and energy, has particularly alarmed families across the UK. In combination with rising inflation, it caused a curb on spending, leaving the country in a loop where they can’t quite stimulate new growth. With nothing in the works to address those families, Sunak’s government has instead focused on new trade with Ireland and India in recent weeks. A dispute over trade routes in Northern Ireland has added to rising costs and completely shuttered Belfast’s government, which Sunak seeks to alleviate. The PM says some progress has been made, but any concessions will likely anger his own party.
With two years left until reelection season and crushing economic predictions, Rishi Sunak will have a long fight ahead of him if he stands a chance of keeping his position. While Sunak is downplaying the role of Brexit, which he has been a long-time supporter of, many across the country are now finding that the economic fallout deeply affects every corner of the economy. With decreased foreign investment after the event, European and American companies have continued to resist investment opportunities in the UK.
Instability in the economy is the number one reason many companies pulled their investments. Then, last year, Liz Truss produced several (now abandoned) unpopular plans to cut taxes, which angered critics and caused further divestment. As she left her very short-term, most investors pulled out again, causing the economy to plummet. Though this up-and-down has remained chiefly quiet as Sunak’s continued leadership is once again signalling that it may be safe for foreign companies to reinvest, these new economic reports may further deter this.
In current opinion polls, the Conservative party is trailing the Labour Party by about 20 points, and some election experts are already predicting Sunak’s defeat. With local elections looming in May and polls showing a disgruntled populace that wants a change in leadership, the UK’s economy may not recover as quickly as the country’s leadership hopes.