Tough Times for Britain



By Ricardo Evangelista


During the second quarter of 2022, the United Kingdom’s GDP dropped by 0.1%, confirming the gloomy expectations of analysts, with the pace of the contraction expected to accelerate in the runup to the end of the year. Meanwhile, June’s inflation exceeded 10% for the first time since February 1982, while wage growth was limited to 5.1%. A significant drop in buying power for British families, driving an increase in poverty.

To a large extent, the rise in inflation has been caused by a dramatic increase in the energy price cap. By early 2023 the average annual UK domestic energy bill is predicted to exceed 4200 pounds (5000 US dollars) – double of the current amount. With the cost of natural gas rising in the global markets, OFGEN (the government regulator in charge of energy prices) has been forced to lift the cap on what utility companies are allowed to charge. A measure necessary to avoid further casualties in a sector that saw 32 domestic electricity providers entering bankruptcy in the recent past.

A study by the University of York published last week forecasts that by January 66% of UK families will struggle to pay their energy bills. This corresponds to 45 million British citizens who will find it difficult to make ends meet, in an extraordinary illustration of the dimension of the crisis facing the nation. Meanwhile, labour protest has taken over the news headlines, as a wave of transport, mail and ports strikes threatens to further exacerbate the ongoing crisis.

The weather, the favourite British topic of conversation, is also a cause for concern. In July, London experienced a temperature of 40.2C, the highest ever recorded in the country, and earlier this month a new heatwave saw the thermometers approach 40C for the second time in 2 weeks. A drought has been declared in large areas of the country, leading to generalised hosepipe bans. Fields that used to be green turned yellow. With fires erupting in both urban and rural settings, the fire service is having its busiest days since the second world war.

If these afflictions were not enough, the UK is also facing the headwinds created by Brexit. Exiting the European Union is proving to be an expensive decision. In June, the Office for National Responsibility, an official body, declared that the country’s GDP is 4% less than what it would be if Britain had remained part of the EU. The Financial Times estimates this loss to represent approximately 100 billion pounds, reducing revenue to the treasury by 40 billion pounds.

Faced with such challenging scenarios, the government is on hold, pending the election of a new Conservative leader who will become the next Prime Minister. Many observers pointed out that the timing is not ideal, with important decisions, including urgently needed mitigation for the rise in the cost of living, delayed until after the new leader takes over, in September.

The UK will eventually recover from this crisis and remain one of the most important and influential western nations. However, in the short to medium term, conditions will be tough for businesses and families, with the worst probably still to come.


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