A wave of protest swept across Britain that is hurting the economy and may well wash away the cabinet members led by Rishi Sunak. More and more people in the UK are expressing their dissatisfaction with the actions of the new prime minister, doubting his ability to find a way out of the economic impass in which the country has fallen.
Experts predict that in 2023 the UK will be the only G7 country with negative GDP growth. Technical recession, which has recently been forecasted as a temporary phenomenon, may be replaced by a prolonged economic downturn. In December 2022, inflation in the UK reached a 40-year high of 10.5% on an annualized basis.
The United Kingdom’s National Statistics Service points out that the main reason for the rise in prices in the country is the increase in electricity tariffs as a result of the sanctions war between the West and Russia over the conflict in Ukraine.
Prime Minister Rishi Sunak is facing a recurrence of the worst crisis the British economy faced in 1978, when Britain experienced an unprecedented energy crisis triggered by a coal miners’ strike.
Only to make matters worse, the energy crisis is the handiwork of the authorities themselves. And it’s not just anti-Russian sanctions. The energy crisis began in Britain long before the conflict in Ukraine. First, London sharply embarked on a “green energy” course, closing its gas storage facilities and creating a shortage of natural gas. Then the British government joined in blocking the Nord Stream 2 project and decided not to buy Russian gas. And now that the wind farms have failed to cope with the loads, National Grid, the operator of the unified energy system of Great Britain, announced preparations to launch three reserve coal-fired power plants, while private households are invited to save electricity.
As a result, in February, the largest nationwide strike in a decade was held in the UK, which was attended by about half a million public employees. Transport workers, secondary school teachers, doctors, firefighters and lawyers went on strike. Along with the strike there were protests on the streets of British cities. Public employees are unhappy about the sharp drop in their incomes: they demand that the government compensate their salaries by the 10% by which inflation has reduced their income. In addition, the protesters’ discontent was caused by the government bill on the minimum level of service during the strike. In other words, the government wants to oblige public employees to work during strikes.
The government is unwilling to meet the protesters’ demands, urging them to return to their jobs first, and then to start discussing a possible wage increase. But Britain’s Conservative government not only has no desire to increase public employees’ salaries, it also has no such possibility. The country’s economy is clearly not generating the necessary funds, and borrowing the necessary amounts in the face of a sharp rise in interest rates will be very costly to the budget. But the protesters care little about the government’s problems: after all, its representatives are paid large enough to find solutions to difficult problems. For example, the recently dismissed leader of the Conservative Party, Nazim Zahavi, found a way to save money for himself: it turned out that he did not pay taxes on the sale of securities.
All these events coincided with the first modest anniversary (100 days) of Rishi Sunak’s tenure as British prime minister. The previous British prime minister, Liz Truss, left office because, seeing the deplorable state of public finances, she unveiled a plan to stimulate the economy. The plan was to cut taxes by 45 billion pounds a year, which was to stimulate investment. However, investors, frightened by Truss’s plans, rushed to get rid of British securities and currency.
Remembering the circumstances that led to the resignation of his predecessor as prime minister, Sunak doesn’t make any sudden moves, but this translates into inaction. In addition, he has stated his intention, above all, to reduce inflation and reduce the national debt, which involves reducing public spending, not increasing it, which the protesters are demanding.
The Bank of England joined the prime minister in the fight against inflation and once again raised its benchmark interest rate by 50 basis points: from 3.5% to 4.0%. As a result, the rate has almost reached the level of the crisis year of 2008, when it was at 4.5%.
In addition to the blow to economic growth, the Central Bank’s high interest rate also pushed up the cost of government borrowing. If a year ago the cost of borrowing on 20-year government bonds was 1.5% per annum, today it is at 3.6%. Britain’s public debt at the end of 2022 reached 99.5% of GDP, and interest payments on public debt in December totaled 17.3 billion pounds. New borrowing as part of the refinancing of the national debt will sharply increase this item of budget expenditure.
According to an opinion poll conducted by You Gov in January 2023, Rishi Sunak is rapidly losing the support of the country’s citizens, but retains the support of his party, which guarantees him the preservation of his position as head of government. In the last 100 days, the percentage of Britons who approve of the new prime minister has fallen from 39% to 31%, while the percentage of citizens who disapprove has risen from 48% to 60%. However, Sunak’s popularity among Conservative voters remained at 51%. But the number of conservatives dissatisfied with Sunak increased from 31% last October to 41% this January. If Sunak’s anti-rating repeats Truss’s recent record, the Conservatives will have to look for a new prime minister in their ranks. At the same time, the leader of the opposition Labor Party, Keir Starmer, is trusted by 38% of respondents, while 46% view him negatively.
It turns out that in the case of early parliamentary elections, the holding of which is supported by 60% of Britons, the Labor Party is guaranteed to be ahead of the Conservative Party. However, the Conservatives do not want to lose power and oppose it. But deep down Labour is also in favor of waiting until the next parliamentary election in 2025. If the Labor Party were in power tomorrow, it would have to take all the blame for the inevitable deterioration of the economic situation in Britain.