Boris Johnson's 'Gift' To His Successor Is An Economic Catastrophe
Across the United Kingdom, businesses and households are warning that they won't make it through the winter without help from the government. That sets up enormous challenges for the incoming prime minister, who will be announced this week, Julia Horowitz reported for CNN Business.
Photo Insert: Enormous challenges lie ahead for the incoming prime minister, who will be announced this week.
For months, the United Kingdom has endured a leadership vacuum while the country has skidded toward a recession and a humanitarian crisis triggered by soaring energy bills. Since Boris Johnson announced he would leave office in July, the outlook for growth has weakened.
Annual inflation is running above 10% as food and fuel prices leap. Frustration over the rising cost of living has compelled hundreds of thousands of workers who staff ports, trains, and mailrooms to go on strike.
The British pound just logged its worst month since the aftermath of the 2016 Brexit referendum, hitting its lowest level against the US dollar in more than two years.
"It's just one blow after the other," said Martin McTague, who heads up the UK's Federation of Small Businesses.
"I'm afraid I can't find any good news." The situation could get much worse before it gets better. The Bank of England anticipates that inflation will jump to 13% as the energy crisis intensifies. Citigroup estimates inflation in the United Kingdom could peak at 18% in early 2023, while Goldman Sachs warns it could reach 22% if natural gas prices "remain elevated at current levels."
Energy bills for households will rise 80% to an average of £3,549 ($4,106) a year from October. Analysts say the household price cap could rise to more than £5,000 ($5,785) in January and jump above £6,000 in April ($6,942).
As people are forced to reevaluate their budgets, the boom in consumption that followed the COVID-19 lockdowns is dissipating fast. The Bank of England has warned the UK economy will fall into a recession in the coming months.
The contenders to succeed Johnson — current foreign secretary Liz Truss and former finance minister Rishi Sunak — face calls to announce a dramatic intervention as soon as one of them becomes the fourth Conservative leader of the country in a decade. The most urgent problem will be dealing with the skyrocketing cost of energy, which could unleash a wave of business closures and force millions of people to choose between putting food on the table and heating their homes this winter.
Experts have warned that people will become destitute and cold-weather deaths will rise unless something is done fast.
"Everybody is assuming that there will be a swift and decisive announcement that puts this issue to bed, or at least provides people with reassurance," said Jonathan Neame, who runs Shepherd Neame, Britain's oldest brewer. "If there's not, that person will come under very considerable pressure."