Great Britain is not only in a political but also in an economic crisis. Inflation recently exceeded the ten percent mark. The impending recession can thus hardly be averted. Treasury Secretary Hunt prepares the British for a tough few months.
The British economy is on the verge of recession after a weak summer. The gross domestic product (GDP) from July to September was 0.2 percent weaker than in the previous quarter, according to the statistics office in London. Economists surveyed by the Reuters news agency had even expected a decline of 0.5 percent. If there are two negative quarters in a row, there is talk of a recession.
The Bank of England recently warned of the risk of a two-year recession. The government prepares the British for difficult months. “I’m under no illusions that we have a tough road ahead of us,” Treasury Secretary Jeremy Hunt said on the GDP figures. “But to achieve long-term, sustainable growth, we need to get inflation under control.” There is no other way. The rate of inflation was recently more than ten percent, which gnaws at the purchasing power of consumers.
The British central bank braced itself against escalating inflation with the largest rate hike in decades: it increased the key monetary policy rate by 0.75 points to 3.0 percent. It was the Bank of England’s (BoE) biggest hike since 1989 – and it was in the middle of a looming recession. “If we don’t act consistently now, it will get worse later,” BoE boss Andrew Bailey defended the decision. The higher interest rates make loans for investments and consumption more expensive, which can also slow down the economy. The economic trend has recently pointed clearly downwards. In September alone, when Queen Elizabeth’s funeral was marked with a one-off public holiday when many businesses were closed, the British economy shrank by 0.6 percent.
The weak economic outlook provides a difficult backdrop for Treasury Secretary Hunt’s budget statement next week. In response to the data, he reiterated his warnings against tough tax and spending decisions to restore Britain’s public finances and government’s credibility on economic policy after Liz Truss’ short tenure as Prime Minister.
