In his 2023 New Year’s speech, British Prime Minister Sunak admitted that the past year has been “difficult” for the UK, and that these problems that make the UK difficult will not “disappear” in the new year. However, he still expressed his belief that in 2023 Britain has the opportunity to “put its best foot forward on the world stage”. In 2021, the UK’s gross domestic product (GDP) will rank fifth in the world. Even if it is overtaken by India in 2022, it will still be the sixth important economy in the world and has the ability to exert its influence in the world. But while we look to Britain to show its “best side,” it’s worth considering why its problems won’t go away.
Austerity leads to wave of strikes
In October 2022, Rishi Sunak will be elected by parliament to replace Truss, who has been in office for 44 days, as the third prime minister of the current Conservative Party government in three years. Needless to say, he inherited a “mess”. According to the August 2022 estimate from the Office for National Statistics, economic growth continued to slow in the third quarter, with real GDP down by 0.2% quarter-on-quarter. According to data released by the OECD, since the outbreak of the new crown epidemic, the UK’s economic growth rate is the last among the Group of Seven countries. Meanwhile, UK inflation was at 11.1% at the end of October, the highest level in 40 years. Preventing the country from falling into a “stagflation” state where economic stagnation and inflation coexist is already a top priority for the British government in 2023.
For the governments of all countries, to get rid of “stagflation”, they have to choose between the two goals of increasing economic growth and curbing inflation. The former needs to implement loose monetary and fiscal policies, while the latter is just the opposite. Prime Minister Truss has launched a “mini-budget” in an attempt to stimulate economic growth through tax cuts amid high inflation. Due to sloppy and confusing policy thinking, Truss’ actions caused British national debt, stocks and exchange rates to plummet simultaneously, making her the shortest-lived prime minister in British history. Based on previous lessons learned, Sunak’s policy choice is actually to reduce inflation by raising interest rates and shrinking the balance sheet by the central bank, while controlling the growth of public expenditure, and restoring macroeconomic balance at the expense of economic growth. In 2022, the Bank of England has increased the benchmark interest rate from 0.25% at the beginning of the year to 3.5%, and the market generally predicts that its rate hike cycle will continue until November 2023, reaching about 4.7%. The negative effect of this approach is that it will exacerbate the plight of the British people’s livelihood in the short term, and may cause an increase in unemployment and a decline in international competitiveness in the medium and long term.
The policies of the Sunak government quickly attracted large-scale protests from the domestic public. Major public employee unions, including railway, airport, postal, university, border inspection and medical staff, organized strikes to demand wage increases. In late November 2022, more than 70,000 employees of 150 universities in the UK staged the largest strike ever, demanding wage increases amid high inflation. Although the strike affected the normal teaching of 2.5 million students, the British University Students’ Union expressed its support for the strike. On November 24, 115,000 Royal Mail workers went on strike for 48 hours. In mid-December, the National Union of British Railway, Maritime and Transport Workers organized a strike of 40,000 employees, which had a major impact on transport services in England, Scotland and Wales. On December 15th and 20th, the Royal College of Nursing, the British nurses’ trade union, launched two general strikes. Tens of thousands of nurses took to the streets to protest wages and working conditions. During the same period, first responders from the UK’s publicly funded National Health Service (NHS) also organized a strike. The strikes of these “institutional” personnel have had a considerable impact on British social life, and the scope may be further expanded in the future.
Faced with a wave of strikes triggered by austerity, Sunak refused to negotiate with the strikers, stressing that his government had “taken difficult but just decisions to regain control of borrowing and debt” and that raising wages for public employees would mean expanding the public debt scale, is impossible under the present circumstances. In order to reduce the social impact of the strike, the British government claims that it is ready to use the army to replace the ambulance and customs personnel on strike, will take decisive action to reduce the “backlog” of patients in the National Health Service, and start to reduce the social impact caused by the strike on the public transport system. influences. In other words, the Sunak government is prepared to withstand the pressure of public employee strikes and implement tight fiscal policies to prevent the British economy from slipping into “stagflation”.
It is difficult to avoid the stagflation trap
Compared with these organized public employees, there are actually more British people silently enduring the pressure of low wages and even the risk of unemployment amid high inflation. They don’t even have the opportunity to vent their anger through strikes. Earlier, Chancellor of the Exchequer Jeremy Hunt announced the autumn budget in Parliament, saying that the British government will continue to increase taxes and reduce fiscal expenditures in the next few years. In other words, the British must prepare for “tight days” in the next few years and wait patiently for the economic recovery after the government effectively curbs the level of inflation. So, is it possible for the UK to achieve stable economic growth at a relatively low level of inflation in the next few years through countermeasures at the macroeconomic policy level? The answer is not optimistic.
First, the UK’s economic growth is highly dependent on the recovery of the world economy. Compared with major European countries such as Germany and France, the UK has a higher degree of “de-industrialization”. After the “neo-liberal” reforms in the 1980s, the British government continued to relax financial controls, and a large amount of capital entered the financial and service industries. Investment in other industries, especially research and development, has been insufficient for a long time, causing the economic structure to become virtual and unemployment in old industrialized areas. Serious and stagnant urban development has made the British economy long-term plagued by insufficient domestic demand and lack of international competitiveness in industries, and it is difficult to rely on its own strength to get out of the trough of the world economy.
Second, UK macroeconomic policy is more influenced by US policy. After the 2016 Brexit referendum, the US became the UK’s most important international trading partner. According to British official statistics, in 2021, the UK exported 47.1 billion pounds to the US, accounting for 14.8% of the UK’s total exports, ranking first among the UK’s foreign trade partners. During the same period, it imported 38.4 billion pounds from the US, accounting for 8.2% of the UK’s total imports. For the UK, which is seriously overweight, the trade surplus of 8.7 billion pounds is very valuable. At the same time, because the Fed’s interest rate adjustment has a major impact on the world economic trend, there is a relatively high interest rate synchronization between the Bank of England and the Fed, and the ability to macro-control the domestic economy through the exchange rate is very low. As a result, an economic “cold” in the United States will lead to a “fever” in the United Kingdom, leaving its economic autonomy at a low level among the world’s major economies.
On December 27, 2022, after the last round of strikes by members of the British Railways, Maritime and Transport Union (RMT) in 2022, King’s Cross Station in London was crowded with passengers who could finally travel by train. After the new year, a new round of strikes has begun.
Third, there are strong uncertainties in the changes in the domestic public sentiment and political situation in the UK. There is a lot of political pressure on any government to raise taxes and cut public spending over the long term. According to the Office for National Statistics of the United Kingdom, under the influence of factors such as inflation, household income in the United Kingdom may drop by 7% in 2023, falling back to the level of 2013, creating the largest decline since records began in 1956. It is not difficult to imagine the resulting dissatisfaction of the British people with the government. In the British local council elections to be held in May 2022, the ruling Conservative Party will lose 12 parliamentary control rights and 483 seats. In January 2025, the United Kingdom will hold another parliamentary election. The Sunak government must stabilize the fundamentals of the British economy through austerity policies within two years. The risk of the economy slipping into a stagflation trap.
Need for greater economic autonomy
For the UK, increasing economic autonomy is a necessary condition for maintaining political autonomy. But judging from the current situation, it is undoubtedly very difficult for the UK to achieve this goal. After the Brexit referendum, the Conservative Party government announced an ambitious “Global Britain” plan, claiming to be committed to maintaining the UK’s international “leadership”. However, judging from Britain’s political actions since then, it is accelerating to become the “vanguard” or even “pawn” of the United States’ global strategy. sexual effect.
The current economic and social predicament in the UK is inseparable from the simultaneous promotion of neoliberal reforms by Margaret Thatcher and US President Ronald Reagan in the 1980s. Due to the one-sided emphasis on the country’s “retreat” and deregulation, the foundation of the British real economy has been severely weakened. In this way, during the rising period of the world economy, the UK can earn a lot of “quick money” through the financial and service industries, while relying on a large number of low-quality, low-income jobs to whitewash employment data. However, when the world economy is on a downward path, the British economy, which lacks autonomy, is bound to fall into a greater crisis than other economies. In fact, successive British governments after the 2008 financial crisis have made a lot of efforts to try to change this economic structural problem. The Cameron government once released the white paper “Government Policies 2010-2015: Industrial Strategy”, which reintroduced the concept of “industrial strategy” into the political lexicon of the Conservative Party. The Theresa May government, which came to power after the Brexit referendum, has a clearer attitude towards the “return of industrial strategy”, promising to build the UK’s “modern industrial strategy” and setting up corresponding executive departments in the government. The policy focuses include establishing an industrial development fund and strengthening technology. Education and training, strengthening infrastructure construction, improving the business environment and promoting balanced regional development, etc. After Johnson took charge of the Conservative Party government, he also launched many positive measures to promote the “return of the country”. However, it should be said that the timing of the Conservative government’s “revision of neoliberalism” was not good. The impact of Brexit, the new crown epidemic, and the crisis in Ukraine has greatly limited the government’s financial resources to reshape the country’s industrial base, and its policy priorities have always been insufficient. , the performance achieved is unsatisfactory.
From a historical point of view, the last time the British economy experienced “stagflation” was after the oil crisis in the 1970s, and then the Conservative Party government led by Mrs Thatcher implemented “neo-liberal” reforms in the 1980s before getting out of the predicament. For the British government, the problem now is that it has been unable to replicate Mrs Thatcher’s successful experience. The first reason is that after the privatization reform in the 1980s, there are not many state-owned assets available for sale in the UK; the second is that the real economy of the UK has been severely weakened. It may not be easy to get a share of the industry. Third, the world economic structure has undergone profound changes. With the rise of newly industrialized countries and developing countries, it is impossible for the UK to return to the status of a manufacturing power. However, it is facing fierce competition from developed countries, and there are not many areas where the UK has advantages.
Under such circumstances, the UK may need to find another way to enhance its economic autonomy, extensively carry out mutually beneficial and win-win international cooperation, and find a sustainable development path in the global economy. In this process, China-UK cooperation is expected to play a positive role. According to British official statistics, China is already the UK’s largest source of imports and sixth largest destination of exports. As long as the two sides adhere to the concept of a new type of international relations and continue to innovate cooperation methods, the prospects for China-UK practical cooperation will be very broad.
