A fine kettle of fish and hot potatoes for Truss
United Kingdom Prime Minister Liz Truss has to address a number of tough challenges that will require more than sound bites to resolve.
The inflation rate of the UK is projected to hit 13.2 percent next month, a 40-year high, and some predict the figure might surge to 18.6 percent as of January next year.
As the first Western country raising its interest rates to check inflation, the UK has not seen the growth curve that its policymakers anticipated. India's gross domestic product surpassed that of the UK and it became the world's fifth-largest economy in March, according to estimates of the International Monetary Fund.
Meanwhile, thanks to massive and untargeted fiscal expansion under the previous Boris Johnson government, the UK's debt has climbed to 320 percent of its GDP. And given the obvious impact of inflation on long-term growth, the IMF forecasts that the UK's real GDP growth might only be 1.2 percent next year.
In the face of gloomy economic data, it is worth noting that financial markets are voting with their feet. On Monday, the day Truss was elected leader of the Conservative Party, the pound recorded its biggest monthly fall against the US dollar, plummeting to a new low since August after its worst run since the 2016 Brexit vote, and the pound has fallen to its lowest level against the dollar since 1985.
According to the Office for National Statistics, the UK's exports to the European Union fell by ￡20 billion ($23 billion) in 2021 compared with 2018, before the formal start of Brexit, and the number of UK companies exporting to the EU plummeted to less than 20,000, almost half the pre-Brexit level. The figures also demonstrated that in the first three months of 2021, the UK's total exports and imports with the EU fell by 23.1 percent compared with the same period before Brexit.
Trade is an important barometer of a country's economic well-being, and the UK's trade deficit widened to about $33.8 billion in the second quarter, its highest on record. This has sparked anxiety in the markets about a sterling crisis.
With the pound and gilts at new lows, uncertainty seems to be rising over whether its so-called allies would be willing or able to come to the rescue of the UK that is struggling with its energy and economic woes in the event of a sterling crisis.
In a debate with her rival during the election campaign, Truss said she would focus on cutting taxes, increasing energy supplies and giving families more support to cope with the current crisis. But critics point out that the government stands to lose tens of billions of pounds from tax cuts or curbs on household energy bills, further worsening the current account deficit.
No wonder some point out that Truss may be the shortest-serving prime minister of the UK over the past 60 years. What Johnson has left for Truss is a fine kettle of fish and smoking hot potatoes.
