UK inflation could reach a staggering 22.4% in 2023 with gross domestic product (GDP) potentially contracting by 3.4% if energy prices continue to rise, US investment bank Goldman Sachs warned earlier this week.
Whoever takes the reins of the British government on September 5, 2022 will have to cope with galloping inflation, an unfolding recession, soaring energy costs and a swirling cost of living crisis.
It is very difficult to see accurate estimates, said Daniel Lacalle, chief economist and investment officer at Tressis Gestion. However, it is clearly a very dangerous and worrying situation. The UK faces a tough winter and very challenging nine months ahead.
Lacalle noted that most of the unfolding situation comes from the energy crisis, and, in his opinion, could not have been prevented.
In fact, the low registered unemployment shows that the economy would have been strong in a normal energy environment.
Last Friday, UK energy regulator Ofgem announced an 80% increase in the energy price cap to £3,549 ($4,194) per year starting October 1, as energy prices continued to race in Europe.
Since its last revision in April, the energy price cap has stood at £1,971. In October 2021, the price cap amounted to 1,277 British pounds sterling.
Europe’s green policies and post-Covid-19 economic recovery created pressure on the global energy sector sending prices higher in 2021.
The EU and the UK’s sweeping anti-Russian sanctions and decision to reduce their reliance on the country’s oil and gas have complicated the situation even further.
On September 5, 2022 the name of a new British PM will be announced, with Liz Truss the favorite in the race. During the final hustings in London on Wednesday, Truss promised no energy rationing and pledged not to raise taxes or cut existing ones regardless of soaring inflation and black-out threats.
However, some British economists do not share Lacalle’s opinion, warning that tax cuts are not a remedy.
The candidates may be promising irresponsible tax cuts and not understanding how the economy works but the public debate is more mature and in the end the right policies could emerge.
Meanwhile, the British Chamber of Commerce (BCC) forecast that the UK will enter recession before the end of this year, adding that growth is also expected to be weak into 2023 and 2024.
The BCC’s prognosis reads that the UK economy may record three consecutive quarters of contraction – which falls under the definition of a recession – in 2022. The entity also puts registered unemployment at 3.8% this year and 4.1% in 2023 and 2024.
Sputnik / ABC Flash-Point News 2022.