UK: Economic crisis looms as inflation jumps above 10%

Britain’s slide towards a recession has gathered momentum after data this week showed inflation jumping above 10%, wages lagging far behind price growth and consumer confidence sinking to a record low.

The deteriorating picture for the world’s fifth-biggest economy comes after the Bank of England warned this month of a 15-month contraction from the end of this year, worse than the outlook for other big European economies and the US.

Higher-than-expected public borrowing figures on Friday underlined the hard decisions facing the next prime minister about how to expand help for the poorest households.

The stakes were laid bare by a warning from public healthcare providers that Britain faced a “humanitarian crisis” as soaring energy prices put many poorer Britons at risk of physical and mental illness.

“Many people could face the awful choice between skipping meals to heat their homes and having to live in cold, damp and very unpleasant conditions,” Matthew Taylor, chief executive of the NHS Confederation, said.

Britain’s average annual household energy bills covering both gas and electricity look set to double again to more than 4,000 pounds ($4,766) by January.

This comes against the backdrop of a record fall in wages, excluding bonuses and adjusted for the jump in inflation which has hit 10.1%, its highest level since 1982.

A strike by London Underground workers brought the British capital’s transit network to a grinding halt on Friday, a day after a nationwide walkout by railway staff. Another rail strike is scheduled for Saturday as the UK endures a summer of action by workers demanding pay increases to offset soaring food and energy prices.

Retailers say they are already deep in crisis mode.

“For many businesses, 2022 is proving to be every bit as challenging as the pandemic,” Helen Dickinson, chief executive of the British Retail Consortium, said.

The focus is turning to whoever wins the race to replace Boris Johnson as prime minister next month.

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The front-runner, Foreign Secretary Liz Truss, has said she will cut taxes. The other contender, former finance minister Rishi Sunak, says that risks fuelling inflation. He prefers more direct and more targeted support.

Andrew Goodwin, chief UK economist at Oxford Economics, said that provided support measures are temporary they would not hurt Britain’s long-term fiscal outlook. “There’s plenty of room for the next prime minister to offer that support and ultimately if they don’t, that’s a political choice,” Goodwin said.

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