On November 13, people walked past a closed shop for rent on the streets of Basingstoke, England.
On November 17, the British Ministry of Finance released the "Autumn Statement" containing the complete plan of the medium-term financial plan. This is the first budget plan released by the new government after it came to power. The purpose is to clarify the tax increase plan and restore the balance of public finances.
According to the British "Financial Times" website, the British inflation rate in October hit a 41-year high, accelerating to 11.1% driven by rising energy and food prices; among them, the annual inflation rate of food prices rose sharply to 16.5%, the highest rate in 45 years highest level.
Since the beginning of this year, affected by factors such as the new crown pneumonia epidemic and the conflict between Russia and Ukraine, the British economy has fallen into the predicament of high inflation, aggravated energy crisis and accelerated economic recession. In addition, the tax cut policy and energy subsidy plan of the former Prime Minister Truss government caused the British fiscal deficit to expand rapidly. The Sunak government has to face the double pressure of raising taxes and reducing government spending. This will undoubtedly make the British economy worse, and a long-term recession is inevitable.
Budget plan draws attention
On November 17, as soon as the British government's first budget plan was released, it attracted widespread attention.
"The 'Autumn Statement' is the first budget plan of the new British government, which is related to the taxation and expenditure plans for the next few years. The main measures include increasing taxes and reducing government spending, with the purpose of restoring the market's confidence in the development of the British economy, so that Investors believe that the UK’s debt situation is controllable and sustainable.” Yan Jin, executive director of the Center for European Studies at Renmin University of China, said in an interview with this reporter that the Sunak government’s top priority is to control inflation and increase taxes It is no easy task to strike a balance between reducing government spending and promoting economic development at the same time.
According to the latest data released by the Office for National Statistics of the United Kingdom, the UK's gross domestic product (GDP) in the third quarter of this year fell by 0.2% from the previous month. Among them, the GDP in September fell by 0.6%. The report released by the Office for National Statistics of the United Kingdom pointed out that the main reasons for the recession in the third quarter of the United Kingdom were the general decline in manufacturing, the poor performance of the service industry and the slowdown in the growth of the construction industry.
The UK is facing a historic cost of living crisis as continued soaring energy and commodity prices put a severe squeeze on real incomes. Bank of England data showed that the UK consumer price index (CPI) rose 10.1% in September. Inflation rose to 11.1% in October from 10.1% in September, the highest level since October 1981, according to data released by the Office for National Statistics. The cost of living across the UK has risen sharply despite the UK government's energy price guarantee. In the past year, the price of natural gas in the UK has risen by nearly 130%, and the price of electricity has increased by about 66%. British households in October have a ceiling of 2,500 pounds on gas and electricity.
In response to soaring inflation, the Bank of England raised its benchmark interest rate by 75 basis points on November 3, the largest rate hike since 1989. This is the eighth consecutive interest rate hike by the Bank of England since December last year, and the UK benchmark interest rate has been raised to 3%, the highest level since November 2008.
Cui Hongjian, director of the European Institute of the China Institute of International Studies, told our reporter that the fiscal policy of the Sunak government is first to correct deviations and solve the huge shock caused by the large-scale tax cuts of the Tesla government; secondly, it is to stabilize market expectations. , Convey confidence through comprehensive measures; Finally, strike a balance between tax cuts and tax collections, inflation suppression and economic growth.
The British economy's troubles are the result of a combination of multiple factors.
The economic predicament of the UK is closely related to the "strong earthquake" encountered by its political arena and financial market.
In a short period of time, the British Prime Minister changed hands twice, and the British government's fiscal policy also experienced a "big reversal". Kwasi Kwaten, who was the chancellor of the exchequer of the Telas government at the time, proposed the largest tax cut plan in the UK since 1970, which triggered a strong reaction from the market.
"Over the years, there have been many problems in the British economic structure, and the problem of industrial hollowing has appeared very early. The British have been trying to adjust the economic structure, trying to achieve a certain balance between the real economy and the virtual economy, but it has not been smooth. Plus The impact of Brexit, the new crown pneumonia epidemic, and the conflict between Russia and Ukraine have severely impacted the financial services industry on which the British economy depends." Cui Hongjian said that the challenges brought by Brexit to the British economy are far greater than the so-called "opportunities" claimed by his government. Since the start of the Brexit process, the UK's trade, investment and industrial policies have entered a period of adjustment, full of uncertainties. During the adjustment process, the UK has encountered many uncontrollable factors, such as the new crown pneumonia epidemic and the conflict between Russia and Ukraine. The period of adjustment coincides with the period of turmoil. Against the background of increasing external unfavorable factors, the UK's ability to independently control the direction of its development continues to decline.
"Currently, the British economy is in trouble, which is mainly caused by Brexit, the new crown pneumonia epidemic, and the conflict between Russia and Ukraine." Yan Jin believes that due to leaving the European Union, the United Kingdom is no longer a member of the European unified market and no longer enjoys the corresponding benefits. Preferential policies, changes in the rules for trading with the EU. This will inevitably lead to higher prices for imported goods in the UK and increased uncertainty in trade with the EU. Brexit has also weakened the UK's status as a world financial center, resulting in a continued weakening of its attractiveness to foreign capital. Affected by the new crown pneumonia epidemic, the British economy will experience its first recession in 10 years in 2020, with weak economic development and a weak labor market. After the outbreak of the Russia-Ukraine conflict, the United Kingdom imposed comprehensive sanctions on Russia, resulting in high energy prices, rising commodity prices, severe inflation, and supply chain disruptions. The UK's foreign trade deficit continued to expand, leading to a serious lack of market confidence and a continuous decline in household consumption.
Cui Hongjian believes that Brexit has consumed a lot of political and policy resources in the UK, but it has not solved the development issues and people's livelihood issues that the UK really needs to solve. Facing domestic economic problems, the UK should focus on structural reform and adjustment. But in the short term, not only is the British government unable to truly plan for the long-term development of the economy, it also has to get caught up in institutional entanglements due to political factors and party interests, and continue to consume political resources.
"In recent years, anti-globalization trends have risen in the UK, which has left the UK in a dilemma. Stick to openness or return to closure? British political decisions and economic policies have oscillated back and forth between the two. Brexit is the choice of the UK, which shows that its departure The attitude of unifying the market and the determination to readjust the direction of development. However, the closed and conservative sentiment of British populism will inevitably take advantage of the situation and interfere with the overall economic decision-making of the UK. Cui Hongjian analyzed that in order to achieve Brexit, the British government has proposed The slogan of "Global Britain" hopes that the UK will participate in global market competition through wider opening up. However, under the impact of populist trends, the British government has long been in the contradiction of using tax cuts or tax increases to deal with economic problems, and it is difficult to come up with more boldness to formulate a systematic response plan. This is one of the main reasons why the British economy is in trouble.
The economy may continue to deteriorate
According to British media estimates, the British fiscal gap is as high as more than 50 billion pounds. The goal of the British Treasury is to significantly reduce government debt within 5 years, which means that the tax burden faced by the British may further increase. According to the "Times" report, British Chancellor of the Exchequer Jeremy Hunt is currently considering three options: increasing the temporary tax rate for energy manufacturing, extending the tax time or adding power companies to the scope of tax collection. Energy companies reaping windfall profits from rising energy prices may be forced to make "sacrifices" to help fill the hole in Britain's public finances.
"The 'Autumn Statement' contains some relatively balanced and prudent tax schemes, which are mainly reflected in increasing income and reducing expenditure. On the one hand, the Sunak government must introduce a tax collection plan, and on the other hand, it must not arouse public dissatisfaction. It must be carefully balanced." Cui Hongjian The effect of the Sunak government's fiscal policy depends on whether the market and the public are willing to give trust and time.
The Bank of England predicts that starting from the third quarter of this year, the UK may enter the longest downturn cycle on record, and the economic recession may last until mid-2024. The UK economy will continue to deteriorate as inflation soars and interest rates rise, pushing unemployment up to 6.5% over the next two years. British Prime Minister Sunak said that the British economy will go through "difficult times".
Bank of England Governor Bailey said that it may take 18 months to two years to control inflation, and there may be multiple interest rate hikes in the next few months. British Chancellor of the Exchequer Jeremy Hunt warned that the road ahead is difficult and some extremely difficult decisions will need to be made.
"The British government needs to gradually get rid of the state of fighting each other and restraining each other. All departments should strengthen cooperation to form a mechanism plan to promote economic structural reforms to ensure the stability and effectiveness of policy implementation." Cui Hongjian believes that what the UK needs It may not be just a reform in the economic field, but an all-round reflection and adjustment to the profound contradictions in the entire society.
(Editors in charge: Yang Guangyu, Bai Yu)
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