How Britain's New Prime Minister Will Help Solve Economic Crisis

Photo by Artur Tumasjan on Unsplash  

The United Kingdom has been subject to discourse on its future given its recent economic plunge. On October 25th Rishi Sunak was appointed Prime Minister, making him the country's 3rd Prime Minister of the year. His task is simple: pulling Britain out of economic turmoil following predecessor Liz Truss’ brief time in office. In the past few eventful months, Britain's political and economic crisis is in need of a solution. Sunak seems up for the job, announcing, “I will place economic stability and confidence at the heart of this government’s agenda.” His position means that he will have to lead the UK through multiple crises, including the high cost-of-living, political disconnection, high inflation, and recession. All of this brings into question how Sunak will help mitigate and begin to solve the economic situation.

For starters, Prime Minister Sunak retained the current Finance Minister Jeremy Hunt and will need to announce a new economic package that will stabilize public finances. However, the anticipated package has been delayed to November 17. It will need to address tax increases and spending cuts, as well as fill the fiscal hole. How Sunak addresses the gaping £40 billion ($45 billion) in public finances will be crucial to investors and Britain's economy. According to Ruth Gregory, senior U.K. economist at Capital Economics, “If the fiscal rules are too loose and/or the policies announced to fill the fiscal hole are considered unachievable, this won’t rebuild credibility with investors.” Sunak’s economic plan will hopefully quell investors' worries and improve the economy. 

Many economic analysts say that Britain is in a recession as the Bank of England said the economy would continue to shrink if interest rates go up based on what financial markets have been expecting. In wake of the recession warning, analysts turn to focus on the UK budget plan, which isn’t expected for more than another week. As of November, bank officials have said they want to bring inflation to 2 percent and will use higher interest rates to do so. Nevertheless, the bank is unlikely to raise interest rates as high as traders had expected (5.2 percent in late October).

According to the House of Commons Library, the last time the UK economy grew above its pre-pandemic size was in November 2021. As of today, the UK is the only G-7 economy not to have re-attained its pre-pandemic GDP level by the second quarter of 2022. Statistics from the UK Office for National Statistics show that gross domestic product (GDP) is estimated to have fallen by 0.3% in August 2022. This came as a surprise, although analysts thought the economy would stall somewhat. 

So what current issues is the UK facing in the wake of economic decline? Well, the country faces labor difficulties and continued industrial problems. There are widespread strikes among postal workers, rail workers and public barristers. Given all of the current information, only time will tell the future of Britain's economy. Until the delayed financial plan will be released, there continues to be uncertainties that won’t be answered.