As UK slips into inflationary recession, consumer confidence sags to record low

THE British economy is rapidly slipping into an inflationary recession, and analysts and economists fear that the situation is likely to worsen during the upcoming winter.

“The reality is that the UK has gotten poorer over the last year,” said Carl Emmerson, deputy director of the UK Institute for Fiscal Studies (IFS). “That makes decisions on taxes and spending all the more difficult.”

The pound is not faring well at US$1.186, hovering close to a 12-month low as it is down 15 per cent from the levels seen in August last year. Overall, it is also weaker against many other currencies such as the Swiss franc, Japanese yen, the euro and the Singapore dollar.

Stock markets, however appear to be in denial. The FTSE 100 of multinational companies, which benefits from the pound’s weakness, has recovered by about 9.5 per cent from its June lows. The local FTSE250 index is also up by 9.4 per cent since June.

There is still a fortnight to go until the UK announces its new prime minister who will take over from the departing Boris Johnson. Emmerson noted that it is hard to square the promises of the 2 remaining candidates – foreign secretary Liz Truss and former chancellor of the exchequer Rishi Sunak - to slash taxes without specific measures to cut public spending.

He added that the only difference between the pair is that Truss - who is 32 points ahead of Sunak in the latest poll of Conservative members - wishes to cut taxes more swiftly. Both candidates, however, are promising unfunded aid to consumers who are suffering from a surge in energy prices that has driven up the cost of living.

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Quoting the Bank of England’s forecast that inflation, already at a 40-year high, will accelerate from the current 10.1 per cent to as high as 13 per cent in the coming months, the IFS forecasts that the real economy will shrink continually from the third quarter of this year until the end of 2023.

Most economists agree that the UK economy is deteriorating rapidly. The country is heavily reliant on the import of natural gas, oil and food, and with all those prices going up, businesses and consumers are grappling with steep increases that show no sign of slowing down.

All this has caused UK consumer confidence to sag to a new record low of minus 44 points in August, according to figures from global market intelligent firm GfK.

Joe Staton, Gfk’s client strategy director, said the overall index score dropped 3 points to reach its lowest since records began back in 1974. “Our sub-measure on the general economy has decreased month-on-month since December 2021 – that’s 8 months in a row.”

He added that consumers’ sentiment on the economy a year from now has slumped to minus-60, a new record.

“These findings point to a sense of capitulation, of financial events moving far beyond the control of ordinary people. With headline after headline revealing record inflation eroding household buying power, the strain on the personal finances of many in the UK is alarming,” said Staton. “Just making ends meet has become a nightmare and the crisis of confidence will only worsen with the darkening days of autumn and the colder months of winter.”

A recent survey by Make UK, an industry body for manufacturers and engineering companies, found that 1 in 8 UK firms believe that energy price increases have reached a point where it is “business threatening”.

As far as jobs are concerned, due to a shortage of skilled workers and the ongoing impact of Brexit, the unemployment rate during the current downturn is only 3.8 per cent. But with strikes and bankruptcies increasing in the face of rising prices, real wages are tumbling and if there is a lengthy recession, economists warn that the jobless lines are bound to lengthen.