[Salon] Hard Times in the UK Put the Squeeze on Sunak

[Chas Freeman <cwfresidence@gmail.com>]

Hard Times in the UK Put the Squeeze on Sunak

A march by striking teachers through Westminster in London on May 2.

Photographer: Chris J. Ratcliffe/Bloomberg

By

Alex Wickham

June 23, 2023

It’s all going wrong for Rishi Sunak and the UK economy.

He made fighting inflation a central mission of his government, staking his premiership on halving it by the end of the year. 

But shock inflation figures this week triggered an unexpected 50 basis-point rise in interest rates from the Bank of England, to 5%. Money markets see rates heading as high as 6% next year, a nightmare for Britain’s mortgage-holders, many of whom now face soaring monthly payments.

Key Reading:
Sunak Says UK Will Be ‘OK’ as Rate Hike Exposes Tory Tensions
Sunak Struggles to Contain Tory Anxiety Over UK Mortgages
Stubborn UK Inflation Triggers a Mortgage Crisis for Millions
Boris Johnson Stripped of Security Pass in UK Partygate Censure

With a general election likely in 2024, this is not where the prime minister wanted to be.

Just a few months ago, Sunak’s aides were buoyant, believing they had landed on a political strategy that might just overturn the opposition Labour Party’s 15- to 20-point poll lead in time for the election.

Inflation would fall quickly, rates would settle, and public finances would improve, they reasoned, allowing Sunak to announce tax cuts to consolidate support for his governing Conservative Party.

That plan is now out of the window. Sunak made clear this week that any tax cuts would have to be delayed until inflation eased. Even worse, the government’s economic advisers admit the country may have to be forced into a recession next year to get prices down. 

All this after weeks of political turmoil in which Boris Johnson resigned from Parliament over a report from fellow lawmakers that found he repeatedly misled the House of Commons as prime minister. That reopened Tory wounds that have festered since the UK’s contentious Brexit vote to leave the European Union seven years ago today.

Sunak and his team know that high inflation, soaring interest rates and a recession aren’t a winning proposition in an election year.

Unless something changes fast, his core scenario may have to shift from reviving the British economy and Tory election chances to mitigating pain and defeat. — Alex Wickham

Labour leader Keir Starmer next to shadow chancellor Rachel Reeves in Edinburgh on Monday.   Photographer: Emily Macinnes/Bloomberg