Britain's Inflation Crisis Deepens, Fueling Strike Action
britain's inflation crisis deepens, fueling strike action

Britain’s Inflation Crisis Deepens, Fueling Strike Action

Inflation in the U.K. rose to 9.1% in May, a fresh four-decade high, darkening the country’s economic prospects at a time of mounting worker unrest and growing disaffection with the government.

The figure marks the fastest rise in prices for a Group of Seven rich economy since the global surge began at the start of last year.

The U.K.’s rapid inflation and low-growth prospects have converged into what Britons have called the cost-of-living crisis, which has displaced the pandemic, the war in Ukraine and the U.K.’s divorce from the European Union as the main preoccupation of voters.

There is worse to come: The Bank of England expects the inflation rate to peak at more than 11% after a further jump in home energy prices that is likely to be announced in October.

While the U.K.’s unemployment rate is low, average wages haven’t been keeping pace with prices, and real spending power is set to fall at a rate not seen in decades. Across the country, that is a cause for growing anxiety.

“I can’t necessarily buy what I want anymore without having to worry about the price,” said Amira Doufani, 26-year-old Londoner who is on maternity leave from her job. “Otherwise, I know that I won’t have enough to pay rent, bills and everything else that I need to pay. It’s definitely affecting not just myself, but loads of people.”

People in England’s rural southwest are facing the same problems. Bob Ashford, who helps run a food bank in Frome, a town in southwestern England with a population of 26,000, has seen a doubling of demand for help over the past year.

“What we’re seeing now, particularly with the rise in inflation and fuel costs, is that it’s not just low-paid earners,” Mr. Ashford said. “It’s middle-income earners too. These are people who never imagined they’d need to come to a food bank, and now, here they are. That’s very difficult.”

Average wages haven’t been keeping pace with prices, and real spending power is set to fall at a rate not seen in decades.

Photo: neil hall/Shutterstock

As in other countries around the world, the higher energy prices that have resulted from Russia’s invasion of Ukraine have been the biggest contributor to the surge in inflation this year. Global food prices have also picked up sharply as a result of the war.

In the U.K., that surge comes on top of price rises associated with the country’s departure from the EU. Economists affiliated with the London School of Economics estimate that as a result of new trade frictions between the U.K. and the rest of Europe, food prices rose 6% over the two years to the end of last year.

U.K. inflation has also been pushed higher by a weakening pound, which raises prices of imported goods and services. In a speech Monday, BOE official

Catherine L. Mann
said the central bank may have to raise interest rates more rapidly than in the recent past in order to strengthen the currency and thereby damp inflation, although that so far has been a minority view.

The surge in inflation, reported by the U.K.’s Office for National Statistics, has had very different impacts for workers employed by private businesses, and those who work directly or indirectly for the government. In the three months through March, pay for private sector workers was 8.2% higher than a year earlier but 1.6% higher for government workers.

Many of those public-sector workers are now starting to strike or are threatening to do so. Rail workers led the way with the first of a series of strikes Tuesday that caused widespread disruption to travel. Teachers and health workers are contemplating similar action.

“We feel that we really are heading into a moment of crisis,” said Kevin Courtney, the joint head of the National Education Union, which has more than half a million members.

The government says it is trying to avoid an inflationary spiral with higher wages leading to even higher prices, which could cause larger falls in real incomes over coming years. It also wants to keep wage bills down so that it can deliver on promised tax cuts.

“It’s right that we reward our hard-working public sector workers with a pay rise, but that needs to be proportionate and balanced with the need not to make the inflationary pressures worse and also to see what’s affordable for the taxpayer,” said

Rishi Sunak,
the U.K.’s Treasury chief.

In May, the government announced its third package of support measures for Britons hit by rising energy bills, with much of the 15 billion pounds, equivalent to $18.4 billion, going to poorer households. But even after that support is delivered, the National Institute for Economic and Social Research estimates that 1.2 million households face food and energy bills higher than their incomes.

As worries about the U.K. economy have grown, support for Prime Minister Boris Johnson has weakened.

Photo: carl court/Agence France-Presse/Getty Images

In addition to suffering the highest rate of inflation in the G-7, the U.K. faces the weakest outlook for growth among the Group of 20 large economies, with the exception of Russia. In a report released earlier this month, the Organization for Economic Cooperation and Development said it expected the U.K.’s economy to stagnate in 2023, with the U.S. forecast to grow 1.2% and the eurozone by 1.6%.

The economy contracted in March and April, and the BOE expects output to decline 0.3% in the three months through June compared with the first quarter. While some of that decline would be due to one-off effects, such as an extended holiday to celebrate Queen Elizabeth II’s 70 years on the throne, economists expect the weakness to persist through the end of next year.

In a note to clients, economists at Berenberg Bank wrote that “a recession seems to be underway” and estimated that the economy would shrink 2.2% between this quarter and the first three months of next year.

The combination of very high inflation and weak growth is a challenge for BOE rate setters.

“Persistently high inflation and a forecasted shallow recession at the end of 2022 means the Monetary Policy Committee continues to walk on ice with heightened risks of deepening the recession if rates are hiked rigorously,” said Urvish Patel, an economist at NIESR.

As worries about the economy have grown, support for Prime Minister
Boris Johnson

has weakened. According to a regular survey by polling firm
YouGov,
in early June 12% of Britons thought the government was handling inflation well, compared with 77% who thought it was performing badly. A series of recent polls show the opposition Labour Party with a significant lead.

Having lost ground in London and elsewhere in May municipal elections, Mr. Johnson faces a likely defeat in one of two special elections to the legislature that are to be held Thursday. Polls suggest his party could lose a second electoral district in rural Devon, southwestern England, that has always voted Conservative.

Write to Elissa Miolene at [email protected] and Paul Hannon at [email protected]

Corrections & Amplifications

Two special elections to the U.K. legislature are set to be held Thursday. An earlier version of this article incorrectly said they would be held next week. (Corrected on June 22)

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