No sugar coating from Sunak, warning UK faces ‘profound’ economic crisis

London: After years of being told the “gloomsters”, “doomsters” and proponents of “project fear” were the real enemy of the public, British politics is about to get a healthy dose of reality.

Rishi Sunak, on his first day of the job, was no longer prepared to sugar coat the contents of the in-tray he had just inherited.

New British Prime Minister Rishi Sunak has warned of tough times ahead.Credit:AP

Until recently, Boris Johnson liked to boast that Britain was “the fastest-growing economy in the G7″. It was never really a statement worth taking seriously because if you bend and fudge numbers enough you can get them to tell you exactly what you want.

Standing outside No 10 Downing St, Sunak was prepared to tell it straight.

“Right now our country is facing a profound economic crisis,” he said.

“The aftermath of COVID still lingers. Putin’s war in Ukraine has destabilised energy markets and supply chains the world over.

“This will mean difficult decisions to come.”

Whether Britain falls into an outright recession or not, this year has already seen the biggest drop in living standards on record and a tough trading environment for businesses.

The OECD expects Britain’s economy to perform worse next year (zero per cent GDP growth) than that of any other developed country except for sanctions-hit Russia.

In its view, high inflation will continue to squeeze household incomes while the government raises taxes and the Bank of England hikes interest rates.

The result will be a completely dismal economic climate. Domestic spending is weighed down by falling real incomes, the export environment is tough and business investment is drying up as firms are ever more cautious about the outlook.

Sunak, of course, doesn’t have clean hands. He presided over the economy and massive spending for almost three years. But the 49 days of Liz Truss has made a bad situation even worse. And Britain, once again, is looking like the sick man of Europe.

Former Bank of England government Mervyn King offered some free advice to politicians the world over at the weekend, when it said it was “time to front up”.

“Have a narrative that explains to people the consequence of a) allowing inflation to pick up; b) confronting Russia and supporting Ukraine, which has reduced our national standard of living; and c) the need to help future generations cope with the increased national debt we are leaving to them,” King told the BBC, adding that taxes will have to rise if public spending remains at the same levels.

British Prime Minister Rishi Sunak.Credit:Getty

Sunak appears to have drawn a line under the delusion of the past few years and is setting out a narrative as to how he will deal with the problems at hand.

While acknowledging Truss’ “restlessness to create change” he said “some mistakes were made”.

“Not borne of ill will or bad intentions. Quite the opposite, in fact. But mistakes, nonetheless,” he said, conceding it was now his task to “fix them”.

“The government I lead will not leave the next generation, your children and grandchildren, with a debt to settle that we were too weak to pay ourselves,” he said.

The task is immense because the underlying factors of Britain’s decline have been left unaddressed for too long. Economic growth for much of the past decade has been low.

Poor productivity has been a major factor behind the limited growth in gross domestic product, the measure of the quantity of goods and services produced, and a flat lining of average real wages.

The UK is not the only country to face a slowdown in productivity growth, but the record of the UK is one of the lowest in the G20. All this has been somewhat masked by the fact unemployment has continued to fall and employment to rise.

Unemployment declined from almost 8.5 per cent in 2011 to just 3.9 per cent on the eve of the pandemic in 2020.

Sunak moving into No 10 is a step back to sanity but no one should be in any doubt about the scale of the challenges which lie ahead.

Putting aside the short-term issues, there are plenty of long-term concerns about the economy with the costs of Brexit, a lack of skilled labour, and a lack of investment in both public sector infrastructure and business investment which will enable a boost to competitiveness and productivity.

Firms exporting to Europe are now faced with an increase in regulation, custom forms and charges for selling goods in the EU. The Office for Budget Responsibility claims the effects of Brexit will cut GDP by 4 per cent – this is up to £100 billon in lost output and £40 billion less revenue to the Treasury.

Sunak has acknowledged the task at hand. And at a time when Britons have grown tired of being treated for fools, getting on with the job and fixing it is perhaps the only choice he has.

Get a note directly from our foreign correspondents on what’s making headlines around the world. Sign up for the weekly What in the World newsletter here.

Most Viewed in World

From our partners

Source: Read Full Article