Prelude to UK recession: Demonstrations, strikes, stagflation…

 　　Future historians may look back at Britain in the early 2020s with a heavy pen, but they may be relentless in their writing.

　　In 2020, the new crown pneumonia epidemic swept the world, and the UK's anti-epidemic performance was particularly bad; in 2021, the world encountered an energy crisis, but the UK suffered from multiple disasters: due to the government's improper response to the Brexit issue, the shortage of truck drivers aggravated the country's energy crisis; in 2022, The UK has ushered in a more severe cost of living crisis: the economy is slowing down, incomes are falling, prices are soaring, and the UK economy may fall into stagflation...

　　On June 18, 2022, a large-scale demonstration against the soaring cost of living broke out in London, the capital of the United Kingdom At the event, protesters chanted slogans and marched through central London, demanding more measures from the British government to combat severe inflation.

　　It seems that the crisis is not serious enough and the situation is not chaotic enough. Employees of the British railway system and subway system have started the largest nationwide strike in 30 years since June 21 due to salary issues and labor disputes. And industries such as teachers, medical staff, sanitation workers, postal workers, and even barristers are also considering holding their own strikes in response to the general strike on the transportation system.

　　At dawn on June 21, tens of thousands of railway workers set up a picket line, and they acted together with subway workers to strike on June 21, 23 and 25. Their joint action will make British railways. and the subway network came to a standstill.

　　The general strike is said to be the prelude to widespread strikes across the UK economy in the coming months.

　　Such a multi-sectoral national strike will only add to the troubled British economy.

Has slipped into a real recession?

　　An American financial media even believes that there are various signs that the United Kingdom may have slipped into a substantial economic recession in 2022.

　　The strict definition of a recession is two consecutive quarters of negative growth in an economy. Although the current British statistics do not meet this definition for the time being, neither the British consumer confidence index nor the indicators of British living standards are optimistic.

　　Not long ago, the Organisation for Economic Co-operation and Development (OECD) predicted that economic growth in the UK would stagnate in 2023, below that of the rest of the Group of Seven, and in the G20, only Russia, which has been sanctioned by the West, will perform. worse than the UK.

　　City bosses were even more pessimistic, warning that Britain could slip into recession later this year.

　　According to official figures from the ONS, UK gross domestic product (GDP) fell by 0.3% year-on-year in April 2022 and by 0.1% in March.

　　June 21 is the first day of a general strike on British Rail and Underground. On this day, Peel, chief economist at the Bank of England-Bank of England, said he expected the UK economy to shrink in the second quarter of 2022.

　　Peel said further monetary policy tightening was needed in the coming months and the Bank of England was ready to take "more aggressive" action.

　　The Bank of England predicts that UK consumer price index (CPI) growth will be above 9% in the coming months and surpass 11% in October.

　　Peel's comments came after the Bank of England on June 16 raised its benchmark interest rate by 25 basis points to 1.25%. It was the fifth consecutive rate hike by the Bank of England, but the central bank warned it could take stronger steps in future policymaking if needed, suggesting the next rate hike could be as much as 50 basis points.

　　The prospect of rising interest rates in the UK and a severe cost-of-living crisis will naturally spill over into the housing market as well. The general consensus in the industry is that if the UK falls into a recession and mortgage rates soar, then the British property market, which has been abnormally overheated during the new crown pneumonia epidemic, may experience a downward trend, and some even predict a collapse in house prices.

　　The UK is not far from the last recession. When the first wave of the new crown pneumonia epidemic hit, the UK economy fell by 2.6% in the first quarter of 2020, and fell by 18.8% in the second quarter of the same year.

　　The UK's earlier recession was the Great Recession caused by the financial crisis. It lasted for five quarters from the second quarter of 2008 to the second quarter of 2009, and was the longest economic recession since World War II. In the five quarters, UK GDP fell by more than 6%.

On June 21, 2022, London, England, the first day of the strike, 80% of the trains in the United Kingdom were suspended, and a large number of people flowed in the transportation system that continued to operate. Many office workers were running on the way to catch their cars, and cyclists also expanded . Figure / Surging Image

How are policymakers responding?

　　Economists believe that the next recession is likely to last longer, rather than a short-lived downturn, given the very weak U.K. economy emerging from Brexit and the two shocks of the new crown pneumonia epidemic.

　　Wyn Bischoff, former chairman of Lloyds Banking Group, said the Bank of England needed to decide how to respond to the current crisis with its monetary policy, "whether to seek a sharp short shock or a slow, but ultimately more painful one. What about Changquan?"

　　"Central bank orthodoxy is almost universally in favor of short shocks, but its acumen is in favor of long shocks," Bischoff said. "However, even if the central bank does not take any drastic action, the UK is likely to face a recession.

　　" Paul Johnson, director of the Institute for Fiscal Studies in London, even believes that in order to keep inflation down, the Bank of England may have no choice but to "promote the recession" with its policies.

　　On June 18, Paul Johnson said in an interview: "It looks like we are already in a period of negative growth. I think that in order to eliminate inflation in the economy, the Bank of England may have to act aggressively and force the recession.

　　" Some former high-ranking officials of the government also began to "interfere in the affairs of the state".

　　Also on June 18, former Labour Prime Minister Gordon Brown said on TV that the current Conservative Chancellor of the Exchequer Sunak will be forced to abandon his plans to raise corporate taxes this summer and cancel plans to raise fuel taxes , to avoid a further spike in inflation.

　　UK corporation tax is currently 19%, and Sunak intends to raise it to 25% next year.

　　Brown, a longtime chancellor, also asked Sunak to prepare a fourth budget to help ease Britain's cost of living crisis.

　　Brown said: "I've seen millions of British households falling into poverty...I've heard that many Britons don't have enough money to turn on the heat. To improve this, the government has to do something, and it has to do better than The first three budgets are fairer.”

　　But former Conservative Chancellor Philip Hammond said in a recent TV interview that the UK government cannot compensate everyone for the cost of living crisis because short-term compensation measures will lead to long-term inflation.

　　Hammond said that all the data at the moment point to a point that the UK economy is heading for a recession. He predicts that the UK economy will slow quite sharply in autumn 2022. But he believes a slowdown this fall "could be a good thing."

　　Hammond acknowledged that he knew people might not see things that way, but "by squeezing inflation out of the economy, we have a real chance of rebounding in better shape next year".

"Summer of Dissatisfaction"

　　British Prime Minister Boris Johnson also seems to have found a "magic bullet" for Britain's inflation problem - calling on British workers to accept pay cuts.

　　On June 9, 2022, Johnson, who was deeply involved in the "Partygate" scandal, said in his speech on restarting his "Prime Minister's Tour" that if the United Kingdom wants to avoid a repeat of the stagflation of the 1970s today, then the British working class A pay cut should be accepted.

　　"We can't solve the cost of living crisis simply by letting wages grow to keep up with prices," Johnson said

　　. Amid the crisis of other worker shortages, Johnson has defended his policies to limit cheap labour from continental Europe at the Conservative Party's annual conference. He said Britain needed to build a high-wage, low-tax economy.

　　Johnson is now calling on British workers to accept pay cuts. Just eight months apart, why has his statement changed 180 degrees?

　　However, British rail and subway workers, who have been on strike from June 21 to demand a pay rise, apparently don't buy Johnson's new claims at all.

　　TUC deputy secretary Paul Nowak angrily dismissed Johnson's calls for staff to accept pay cuts as "nonsense". "It didn't take long for the prime minister to back away from his promise of a high-wage economy," Novak noted.

　　Novak said company bosses could only provide workers with financial security amid the worsening cost-of-living crisis: "British workers are experiencing the longest pay cut in more than 200 years. They desperately need more income."

　　Many academics also questioned Johnson's call for workers to accept pay cuts. They argue that further restrictions on workers' salaries will actually only exacerbate Britain's deep-seated economic problems.

　　For example, some academics say that the best way to achieve sustained increases in employee pay without compromising a company's profitability and leading to vicious layoffs is to increase productivity. Numerous studies have shown that higher trade barriers, stricter immigration policies and lower foreign direct investment can hurt productivity, and Johnson's Brexit over the past few years, as well as his trade and immigration policies, are precisely the same. undermining British productivity.

　　Future historians may also look back at Britain in the early 2020s with comparisons to the 1970s, but they are more likely to place much of the blame for today's woes on Johnson and his Conservative government.

　　In the UK in the 1970s, there were also strikes, stagflation and energy crises. Shortly before Margaret Thatcher, also a Conservative, became prime minister in 1979, the "winter of dissatisfaction" had led to mountains of rubbish on the streets.

　　On June 21, 2022, the largest strike by railway workers and subway workers in the UK in 30 years brought the entire country back to the "ghost town" model of crowded streets during the first epidemic blockade two years ago. At least half of the trains will be shut down for three days due to the general strike, the worst disruption to traffic since Mrs Thatcher took over the British government.

　　The head of the union coordinating the strike has also urged broader action across industries across the UK and raised the possibility of a nationwide general strike across industries for the first time since 1926.

　　More than 40 years after the "Winter of Discontent", the UK is now ushering in a "Summer of Discontent".