Pensioners protest against rising fuel prices at a demonstration outside Downing Street called by the National Pensioners Conference and Fuel Poverty Action on February 7, 2022 in London, England.
Jay Smallman | Getty Images
LONDON – “The brains of humans and other animals contain a mechanism designed to prioritize bad news,” former Nobel Prize-winning economist Daniel Kahneman once said.
For the British, this mechanism took a beating in recent months.
The Bank of England .this week Added to your emergency rescue package For British pension funds, while the government Submit a medium-term fiscal policy planafter plunging markets into chaos with its widely criticized advertisements last month.
It was a number of pension funds Hours of collapse when the central bank enters On September 28, policy makers continue to struggle against market volatility with further expansions of the bond buying plan on Monday and Tuesday.
The sudden rise in interest rate expectations in the wake of the so-called “mini-budget” of new Finance Minister Kwasi Quarting has also caused Chaos in the mortgage marketleading banks to withdraw products and rates to rise for potential homeowners.
Meanwhile, the British pound fell to Lowest level against the dollar In the wake of Kwarteng’s policy announcements, it only regained some ground when the government turned against some of its more extreme policies, such as scrapping the highest tax rate for high-income earners in the country.
Kwarteng announced on Monday that his scheduled expansion of last month’s controversial fiscal plans – and an independent assessment of their impact from the Office of Budget Responsibility – will be brought forward for three weeks until October 31, the Treasury and Bank of England appear. To allay market fears and restore credibility.
On the same day, the central bank is expected to start selling sovereign bonds (British sovereign bonds), as part of its belated quantitative tightening efforts as it undoes pandemic-era monetary stimulus in hopes of tackling hyperinflation.
Economists expect more volatility in the bond market, and a risk to pension funds, in the coming weeks ahead of the full budget statement, while the Bank of England continues to walk a tightrope between ensuring financial stability and curbing inflation.
The recession has begun
Benjamin Nabarro, chief economist at Citibank UK, noted at an Institute for Fiscal Studies event on Tuesday that the UK is the only G7 economy that has not recovered its pre-pandemic level of GDP by the second quarter of 2022.
Britain’s economy contracted 0.3% in August, the Office for National Statistics estimated on Wednesday, and what economists expect of a prolonged recession is likely to start during the winter.
The Office for National Statistics said gross domestic product had just returned to its pre-pandemic level, highlighting the challenge facing Prime Minister Liz Truss’s “grow, grow and grow” agenda. The prime minister has committed to a radical overhaul of the country’s economic policy, vowing to tackle anemic growth over the past decade or more, even though her party has been in power since 2010.
The government’s growth plan must also overcome the impact of Brexit, which most economists expect will reduce real GDP per capita. According to the government’s Office of Independent Budget Responsibility (OBR), Brexit will reduce UK productivity potential of 4% in the long runThe Organization for Economic Co-operation and Development expects the UK to have the lowest growth in the G20 in 2023, with the exception of Russia, which is subject to severe sanctions.
Raj Badiani, director of economics at S&P, said: “Real GDP is likely to decline again in September in line with double-digit inflation eroding household purchasing power and loss of output from the extra bank holiday coinciding with Queen Elizabeth’s funeral on Monday. September 19. Global market information.
Queen Elizabeth II, the world’s longest-reigning monarch, passed away on September 8 After 70 years on the throne, she ushered in 10 days of patriotic mornings and a public holiday on the day of her funeral.
“We now believe the recession in the UK started in the third quarter of 2022 and is likely to last for three quarters. Our near-term GDP forecast anticipates a recession extending into 2023 as severe and prolonged pressures on the household budget feed the consumer. stagnation”.
The S&P also expects the economy to contract through the whole of 2023, despite significant fiscal stimulus such as the government’s energy price guarantee and income tax cuts, due to higher household borrowing costs, waning demand in critical export markets and continued volatility in financial markets.
The latest labor market statistics show the UK unemployment rate has fallen to 3.5%, its lowest since 1974, buoyed by a rising inactivity rate, which now stands at 21.7%.
From June to August, the annual growth in average total wages (including bonuses) was 6% while the growth in regular wages (excluding bonuses) was 5.4%, representing a decrease in real terms of 2.4% and 2.9% over straight.
UK inflation fell slightly to 9.9% in AugustThe sharp rise in food and energy prices has led to annual consumer price inflation rising to a level 40-year high of 10.1% in the previous monthbut economists expect it to rise during the remainder of the year.
The worst-case scenario put in place by the national electricity system operator, the National Grid, has warned that homes and businesses could face a three-hour blackout during the winter season to prevent a grid collapse. But senior cabinet minister Nadim al-Zahawi told the BBC this week that this scenario was “highly unlikely”.
Prime Minister Liz Truss is also under pressure from lawmakers in her party to ensure welfare benefits are increased in line with inflation, with reports suggesting she may choose to raise them in line with earnings instead, causing more pain at the country’s lowest-income. families.
New research by British investment house Charles Stanley found that 22% of UK adults said they had sleepless nights due to market volatility, rising inflation and a rising cost of living, while one in 10 said they had experienced panic attacks.
“Even under ‘previous’ circumstances, financial stress can overwhelm us, but we live in unprecedented times, and the term ‘financial stress’ has taken on a whole new meaning,” said Lisa Kaplan, Principal of OneStep Financial. Planning at Charles Stanley.
“The cost of living crisis is having a detrimental effect on individuals, not only financially, but also physically and mentally.”
The spread of strikes
Postal workers, railway workers, journalists and lawyers have carried out strikes in recent months to protest wages and conditions, with wages failing to keep pace with inflation of around 10%.
Rail strikes by RMT union members protesting wages and conditions brought the country to a standstill for several days throughout the summer and into the fall.
Communications workers union members are also continuing to strike, including 115,000 postal employees of the former state monopoly Royal Mail. CNBC reported on Friday that CWU representatives have entered into talks with Royal Mail executivesHowever, another 19 days of postal strikes in the run-up to the holiday period are still set to continue unless significant progress is made in the coming days.
Meanwhile, the Royal College of Nursing (RCN) is currently conducting its first industrial action ballot in its 106-year history for its 300,000 members, and is demanding wage increases in line with inflation. RCN cited a new analysis from London Economics, which finds that the real income of nurses has fallen by twice the rate of the private sector over the past decade.
The government imposed a 4.5% minimum wage increase for most NHS staff in July, which represents a real wage cut of more than £1,000 a year when adjusted for inflation.
Waiting times to access the country’s National Health Service are at an all-time high, with public hospitals suffering from understaffing and a shortage of beds.
The GMB union is also conducting ballot papers for ambulance staff in various regions of the country, where the real salary of paramedics has been reduced to £1,500 a year. Junior doctors will vote to strike industrial action in early January, after the government refused to meet the British Medical Association’s request to return increases to 2008-2009 levels by the end of September.
Junior doctors were excluded from the NHS’s 4.5% increase, and the government instead imposed only a 2% increase, which the BMA called “ridiculous” in the face of the ongoing cost-of-living crisis and in the wake of Covid-19. pandemic.
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