Gasoline is for £ 2 per liter. A £ 100 banknote to refuel an ordinary family car. A warning from the leading Western think tank that only Russia, one of the world’s 20 leading economies, will grow weaker than the United Kingdom next year.
Boris Johnson may have hoped for easier weeks to begin his political struggle. Economic recovery is vital if the prime minister wants to stick to his job after 148 of his lawmakers said they did not trust him. Things will not get easier for a while.
Speaking in Lancashire earlier this week, the prime minister said voters could be “confident that things will improve, that we will emerge from this strong country with a healthy economy”.
By “this” Johnson was referring to the cost of living crisis, which had paid off with hopes of a speedy recovery from the pandemic, a crisis that pushed government loans to levels never seen before in peacetime, and taxes as a share of national production. high since 1940
Russia’s invasion of Ukraine means that prospects have deteriorated over the past three months, and the message from Rishi Sunak to his cabinet colleagues is that Britain is facing difficult times. It will be next year before the outlook for the economy shows signs of improvement, and the coming months will look particularly difficult.
Rising gasoline prices will exacerbate the cost of living crisis. Pressure on living standards will reduce consumer spending at a time when business confidence is weak. A summer of stagflation is looming, and some analysts say that the threat to Johnson has not disappeared.
Gasoline is converted to £ 2 per liter. Photo: Amer Ghazzal / Rex / Shutterstock
Calum Pickering, a senior economist at Berenberg, said: “The risk of economic deterioration in the summer, as well as poor results in the upcoming by-elections such as in West Yorkshire and Devon on June 23, can still turn the swing against Johnson. Unless he makes a dramatic improvement in his research in the coming months, Johnson is likely to face new challenges for his leadership. “
For some Tory MPs, the way to return Johnson is obvious: tax cuts. They blame at least part of the government’s unpopularity for the decision to break the election promise in 2019 by increasing national social security contributions to pay higher NHS and welfare costs.
“The overall tax burden is very high now – and sooner or later, and I would very much like it to be sooner rather than later, that burden has to fall,” Johnson said this week. “You can’t spend your way out of inflation and you can’t spend your way to growth.
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Tax cuts are imminent, but not yet. The chancellor fears huge handouts at a time when his room for maneuver is being eroded by rising inflation and higher interest rates. The amount that workers can earn without paying national insurance has risen from £ 9,880 to £ 12,570 on 1 July, but no further announcements are planned before the autumn budget.
Samuel Tombs, the UK’s chief economist at Pantheon Macro, said it was “not surprising” that the prime minister was considering lower taxes, but said the scope was limited unless the Treasury was prepared to violate its self-imposed fiscal rules. These rules set targets for balancing daily government spending with tax revenues and reducing debt as a share of GDP after three years. “However, tax cuts will have to be very large to significantly change the economic outlook,” Tombs said, adding that the government would have a “greater effect” by increasing social payments for low-income households.
Shadow Chancellor Rachel Reeves saw Rishi Sunak’s belated U-turn back as a big profit for Labor. Photo: Jeff Overs / BBC / PA
Labor, meanwhile, believes their message of “taxes are fair, spend wisely, grow the economy” reaches voters. Rachel Reeves, the shadow chancellor, saw Sunak’s belated backlash with an unforeseen tax as a big win for the opposition, which often struggled to get a public hearing during the pandemic. Conservatives will be concerned that Labor has closed the gap in the polls for the best party to run the economy, and that concern is likely to increase as the months leading up to the next election.
For now, however, the prime minister will be able to limp, in part because there is no obvious favorite to replace him. Nor is there an easy policy lever that a new resident of Downing Street 10 could pull. When Margaret Thatcher was ousted in 1990, her successor, John Major, managed to get rid of the unpopular public tax. Theresa May’s failure to end Brexit hardships led Johnson to become prime minister in 2019.
This time, dissatisfaction with the prime minister is more about character and fitness for office than politics. Alleged contenders like Jeremy Hunt are being touted as a pure pair of hands after Partygate, instead of proposing a totemic policy change.
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Adam Cole, chief currency strategist at RBC Capital Markets, said that even if Johnson left, it was unclear that there would be a significant change in direction. “When Sunak was the favorite to succeed Johnson, it would be reasonable to expect a change to fiscal orthodoxy, but that is no longer the case.
In the absence of immediate tax breaks, the prime minister began a long and difficult struggle to dig himself out of a political hole with a (renewed) commitment to expand the right to buy from housing association tenants and promise to accelerate economic growth through supply-side reforms.
But these measures will take time to work and Johnson needs quick results. History suggests that he is right, that things will eventually get better. The story also suggests that he will go before them.
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