Prime Minister Rishi Sunak hopes to hold on to power by selling himself as the fixer for a broken Britain. On Wednesday, he received a faint sign that the recovery effort is gaining strength: the government announced that Britain’s inflation rate in June was 7.9 percent, down from the previous month.

But the rate is still higher than that of Britain’s European neighbors and more than twice that of the United States. And it’s just one of a host of economic problems – from spiraling debt to joblessness to surging growth – that dog Mr Sunak as he insists his Conservative Party, in government for the past 13 years, deserves to stay. after an election he must call by January 2025.

The Conservatives will face an early test of their political fortunes on Thursday, with three by-elections, special elections to fill seats in parliament vacated by conservative lawmakers. The party goes on for a long day.

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

Mr Sunak, a former Chancellor of the Exchequer who once worked at Goldman Sachs, has cultivated a reputation as a technocrat and problem solver. He rejected the temporary ideological experimentation of his predecessor, Liz Truss, and the have-your-cake-and-eat-it style of her predecessor, Boris Johnson.

But Mr Sunak’s return to fiscal prudence has yet to revive UK growth. Conversely, inflation forces the Bank of England to raise interest rates aggressively to avoid a wage-price spiral. The tight monetary policy threatens to tip the economy, already stagnant, into recession. And it is hurting millions of Britons who face rising rents and higher rates on their mortgages.

Inflation, economists agree, is likely to continue to decline in the next six months, perhaps even enough to meet Mr. Sunak’s goal of halving the rate to 5.2 percent by the end of the year. But Britain’s other problems – anemic growth, low productivity, job shortages and a crumbling National Health Service – are unlikely to be resolved in time for him to claim a full turnaround before he faces the voters.

“Low productivity and low growth make economic policy challenging,” said Mahmood Pradhan, head of global macroeconomics at asset manager Amundi. “It reduces fiscal space. It’s a very tight court to be in.”

With public finances deteriorating, Mr Sunak can neither spend much to raise wages for striking doctors or railway workers, nor can he offer tax cuts to voters. As things stand, he is already at risk of missing another of his five promises: reducing the national debt. Government debt has risen to more than 100 percent of the gross domestic product for the first time since 1961, according to the latest data.

For two years, the government froze the income brackets for personal income taxes rather than raising them with inflation, raising the effective rates. As a result, Mr. Sunak finds himself in an awkward paradox: a free-market conservative going to an election with a government that.t imposes the largest tax burden on the electorate since World War II.

Critics argue that he has no one to blame but himself. Mr Sunak supported the fiscal austerity of the Tory-led government of David Cameron and his chancellor, George Osborne, which has hurt Britain’s productivity and hollowed out its public services. And he championed Brexit, which cut its trade with the European Union, scared off investment and worsened its job shortage.

“He is quite rare to be directly associated with both Cameron-Osborne austerity and Johnsonian hard Brexit,” said Jonathan Portes, professor of economics and public policy at Kings College London. “Many other senior Tories could credibly claim that they really didn’t buy one or the other. Not Sunak.”

This week’s by-elections testify to Mr. Sunak’s predicament. One seat belonged to Mr Johnson, who resigned from parliament after a committee recommended he be suspended for misleading lawmakers about his attendance at parties during the coronavirus pandemic lockdown. Another was held by an ally of Mr Johnson, who also resigned, and the third by a lawmaker who resigned after allegations of drug abuse and sexual misconduct.

While Mr Johnson’s sordid legacy and Conservative Party scandals will play a role in these races, analysts say the cost of living crisis will be the dominant issue. Few governments, Professor Bale noted, win elections when real wages are eroding, as they are in Britain. In the latest polls, the opposition Labor Party leads the Conservatives by close to 20 percentage points.

The specter of a sweeping defeat has put Mr. Sunak under pressure from conservatives to offer voters help in the form of tax cuts or help to pay their mortgages. Most analysts, however, expect him to promise a cut in income taxes next spring, delayed 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 has suffered from supply bottlenecks after the end of pandemic lockdowns, from rising food prices and from the lingering impact of rising energy prices after Russia invaded Ukraine.

However, Britain’s core inflation rate – which excludes volatile energy and food prices and is a gauge for domestic price pressures – remained high at 6.9 percent, compared with 4.8 percent in the United States and 5.4 percent in the eurozone.

“That does suggest that these inflationary dynamics have become more embedded than in other countries,” said Kristin Forbes, a professor of management and global economics at the Massachusetts Institute of Technology, and a former member of the Bank of England’s tax committee. .

Britain, she said, had the misfortune of being hit by both the energy spike, like its neighbors in Europe, and strong domestic inflationary pressures from a tight labor market, like the United States.

“The UK faced a more difficult challenge than the other countries, in the sense that it was really hit by a confluence of shocks that were bigger than the individual shocks hitting other countries,” Professor Forbes said.

But there are other problems that are distinctively British. Unlike most countries, the UK still has more people in the workforce than before the pandemic. A majority say they cannot work because of long-term illnesses, a problem exacerbated by the NHS crisis. With so many jobs, wages are rising rapidly, further fueling inflation.

Mr Sunak has proposed increasing public sector wages by five per cent to seven per cent to end strikes that have closed Britain’s schools and crippled the health service. But that has yet to quell labor unrest.

Britain has so far avoided recession, surprising some economists. But its resilience could be cracking as people cut back on spending to pay off their rising mortgages. Already around 4.5 million families have had to swallow rate increases since the Bank of England started raising interest rates in December 2021. The rest, another 4 million, will be affected by higher rates until the end of 2026.

As with other Western leaders, Mr. Sunak’s fortunes may be largely out of his hands. Last month, the Bank of England, stung by the virulence of inflation, unexpectedly raised interest rates by half a percentage point, up to five percent. Traders are betting that rates will rise further, to around 5.8 percent by the end of the year – implying several more rates that would mean higher financing costs for businesses and households and further damage economic growth.

“The more tension we see, the risk of recession increases,” said Mr. Pradhan, who served as deputy managing director of the International Monetary Fund. “It wouldn’t take very much to tip the British economy into recession.”

By admin

Leave a Reply

Your email address will not be published. Required fields are marked *