Milad Sherzad looks at the economic situation facing the UK and the world over the next months, and how the government is failing to handle it effectively.
What a time to be alive. We are witnessing the closing stages of a pandemic becoming endemic in the UK, one of the worst cost of living crises in living memory, and the largest rail strikes in 30 years. We have citizens fearful of whether they will be able to afford their weekly shop and, with winter looming in a few months, whether or not they should eat or keep warm, a choice no person should have to make, let alone one living in a highly developed nation. The Government points to Covid and Ukraine, much of the population point to ineffective governance, and some are even pointing at Brexit. Regardless of the true cause, the situation is that we have a likely rapidly increasing relative poverty rate in the UK, with many people struggling to perform basic daily activities without fear of having no money left to spend. How on Earth has this been allowed to happen, and why does it feel like nothing is being done to fix it?
Historically, when a nation is in a time of economic crisis, its government steps in to protect its citizens from as much hardship as possible, and runs a deficit in order to re-inflate the economy, using funds saved up from its prior boom. Or at least this is what Keynes had in mind. If you look at the UK now however, the picture is far more bleak. Over the past decade, real wage growth has been almost negligible, with those individuals feeling the most significant wage growth ones who most certainly did not need it. The ‘fiscally responsible’ Conservataive party have presided over a pitiful GDP growth rate and deficit issues (pre-pandemic), with most of us wondering, where is that spending even going? Brexit no doubt worsened our ability to bounce back quickly from the pandemic, through a shrunken labour, goods, and services market. Also, the pandemic itself is of course no help to any government, but its priority should always have been to protect its people, something anyone would admit this Government did not do. Then, just as the country looked to be on the path to recovery, the Russian invasion of Ukraine happened and, to put it lightly, threw all recovery plans into a wild and inextinguishable fire. This leads us to where we are today with mass strikes on the railways last week, and other strikes planned across other industries, ridiculously high rates of inflation, and ultimately, people struggling to live from day to day. In the last quarter of 2020 for example, the ratio of house prices to average earnings grew larger than 8, a figure not seen since just before the financial crisis of 2008, and before that the 1890s. People are being priced out of everything and we must ask, what is in store for us over the remainder of this decade? Will we ever see a full economic recovery or is this a sign of things to come, not just for the UK but globally. With Johnson now claiming he seeks to remain in power until the mid-2030s, is there any hope for the UK to salvage itself from this worrying and embarrassing position, and save itself from this horror story of a Government?
I hate to be the pessimist in the room, but I do not see a bright immediate future for the UK, nay the World, economy; people will suffer, in rich and poor nations, far and wide. There seems to be such a vast number of crises going on that one barely has enough fingers to count them. It is a recoverable position, but only with good governance. Between now and the end of the decade, I foresee government neglect worsening, people forced to make difficult choices over items we would have never imagined being in such short supply. The world may even backslide in terms of development, as the lack of unified cooperation and responsible governance hurts the quality of life of those that already suffer the most. The gap between rich and poor will widen, as unrest rises, and I feel these strikes are just the start of the mass discontent the British people have with their ruling party. As for the economy, its main output now will be disutility for people nationwide, as costs spiral out of control. An ideal government, *cough* a Labour one *cough*, would actively be taking steps to protect its citizens from economic hardship and be acting decisively. Half of the cost of decision making is in the delay of action; if a windfall tax on energy companies had been enforced earlier, we may have avoided such a rapid deterioration in people’s incomes and quality of life. Further, we would expect a functioning government to actively take steps to minimise other spiralling costs, such as that on fuel and basic essential foods. Who would have thought leaving an enormous free market of goods would have made us worse off in an economic crisis? It is not all negative though; as Johnson now wishes to remain in power until the mid 2030s, I think Labour have a good chance of succeeding at the next general election, and finally, a UK Government might actually help people. But until then, all I can hope for is enough unrest for a strong message to be sent to No10 that we shall take this nonsense no more.
Milad Sherzad is an Economics and Politics student at the University of Edinburgh, heading into his 4th and final year. His main interests lie in general macroeconomic and transport policy in the UK, development economics, and behavioural economics in the context of political systems. He tweets at @milad_sherzad.
https://www.bbc.co.uk/news/business-61891649
https://www.gov.uk/government/statistics/forecasts-for-the-uk-economy-june-2022
https://www.pwc.co.uk/services/economics/insights/uk-economic-outlook.html