Britain’s made an economic own-goal.
The United Kingdom last week got a new Monarch and a new Prime Minister.
King Charles III and Liz Truss could scarcely have taken up their new roles in less propitious circumstances.
The annual inflation rate in the UK is around 9 per cent. One recent forecast said it could reach 18 per cent in 2023. That probably won’t happen now as one of the first measures the new PM took was to put a cap on household energy bills.
The cap means these bills can only double, they won’t be able to treble, as had looked possible. Even with this measure, UK’s inflation rate will still be one of the highest in Europe next year.
The new energy package is also going to be financed by Government borrowing, rather than by a windfall tax on the large profits being made by gas and oil companies as some had proposed.
The UK’s government debt level was already high at around 95 per cent of gross domestic product before this package. New Zealand’s government debt level is 21.3 per cent of GDP by comparison. That high ratio is obviously going to go over 100 per cent next year. That is also one of the highest debt ratios in Europe.
The Governor of the Bank of England said recently that the UK will not be able to avoid recession next year. The President of the ECB, on the other hand, said recently that though economic growth in Europe will stagnate late in 2022 and early 2023, she did not expect Europe to go into recession.
These dire predictions for the outlook for the UK economy got me thinking about the promises made to the citizens of the UK if they voted to leave the EU in the Brexit referendum. I found an article that listed 15 things the Brexiteers promised would happen if the UK left the EU. I don’t have space to list all 15 of the promises but they included higher wages, much faster growth, Stg350 million a week extra for the National Health Service and Northern Ireland’s border would be “absolutely unchanged”.
Most of the economic promises made are still to be seen and I doubt that they will ever be seen. In economic terms, Brexit must count as the worst ‘own-goal’ any country has imposed on itself.
The Brexiteers also promised that leaving the EU would strengthen the Union. With the ascension to the throne of Charles III, the United Kingdom is again a Kingdom. But it does not look much like a United Kingdom. Many Scots are keen to have another referendum – and this time if they want to be a part of Europe they would have to vote to leave the UK, not to stay in the UK as in their last referendum. The Northern Ireland situation is still not fully settled.
This last point got me thinking about how the recent economic performance in the Republic of Ireland compared to that of the UK. Until 2005, GDP per capita was higher in the UK than it was in Ireland. But in 2021, GDP per capita in Ireland was more than double that in the UK. Ireland was US$99,000 per person and the UK was US$47,500 per person. That’s an extraordinary turnaround. Ireland has been able to do very well economically within the EU.
