By Graham Vanbergen: The United Kingdom is heading towards an economic perfect storm – stagflation. It appears that economists are now only just accepting that this is far more likely than not. In six months’ time, Britain will also likely be facing a winter of discontent.
I wrote several months ago in the European Financial Review – It is inevitable that both recession and inflation, commonly known as ‘stagflation’ will hit Russia very hard. But the same stagflationary effects (on a less severe scale) will also affect Europe as a whole, as it will the USA. Both are energy-dependent on Russia. The former is a physical requirement, the latter is not in control of global pricing. As jobs get lost and inflation continues its northward trajectory, households will do the inevitable and tighten their belts in expectation of harder times. Interest rates will rise to combat inflation. This will result in banks tightening financial conditions – which will see businesses look at how to save cash and significantly reduce R&D. The effects of stagflation are awful – and dangerous.”
Today, it is largely accepted that stagflation in Britain is unlikely to be avoided.
In The Economic Times, we have published reports on how Brexit is crushing business with a third of British exporters to the EU now out of business and that manufacturing growth is markedly slowing. The British art market, once the number two hot spot in the world has lost its place to Italy, France, Germany and China for the same reason. We’ve reported on how global supply chains will continue to suffer well beyond this year and that inflation, and shrinkflation will hit households really hard.
Household savings are plummeting, credit card debt has reached new records and well over one million households are to be pushed into poverty within a year.
Today, The Times reports that – “Deloitte’squarterly survey of finance chiefs at some of the UK’s biggest companies finds they are facing the toughest “external challenges” for eight years. Its gloomy findings are echoed by the rival accountant BDO, whose bi-monthly poll of 500 medium-sized businesses reveals that many are scrambling to raise cash to cope with rocketing costs.”
None of this bodes well. Confidence amongst consumers, manufacturers, exporters, growers and so on are all negative. Although the commentators and economists have not said so – a recession is coming, job losses are coming and inflation will continue to hit household purses. The result of all of this could easily be unrest.
Already industrial disputes have rocketed – reaching their highest in five years, with Britain’s biggest trade unions taking on scores of employers to challenge wage and salary offers that lag behind inflation. And as previously reported, this is not just about what has happened in the last year – its stretches back all the way to the bank-led financial crisis.
Over the past 12 months alone, the Trades Union Congress has recorded at least 300 disputes in different industries.
Since 2008, Britain has seen wage stagnation on the one hand whilst corporate profits were soaring on the other. Allied with the more recent cost of living crisis – public anger is becoming more evident.
In Britain, over the centuries, we’ve had events of public unrest over the price of things as obscure as theatre tickets, fish skins and even wrestling. Over the last 100 years, the majority of these events have been politically motivated. However, since 2015 the government have been cracking down on events of public unrest with many more severe penalties even for peaceful protest (including prison sentences). In fact, no significant events have taken place since 2017.
But public anger is rising as quickly as discretionary household spending is being crushed by all the aforementioned pressures and the likelihood is that in the late summer and early winter, that anger could spill over.
The Winter of Discontent was the period between November 1978 and February 1979, characterised by the battle between pay rises and inflation. But there was something else similar to today that was not well recorded. The unrest back then had other deeper causes besides anger over pay rises and inflation. The Labour party fought over its internal divisions and its commitment to socialism. It manifested in disputes over labour law reform and macroeconomic strategy during the 1960s and early 1970s and pitted constituency members against the party’s establishment. We can see similar philosophical and economic policy struggles going on with Keir Starmer’s recent battleground of evicting Corbyn and his acolytes and his attempts to make the party electable.
Back then in the 1970s, the result was that a political shift took place – instrumental to the victory of Margeret Thatcher in the general election after Labour’s James Callaghan’s government fell to a no-confidence vote.
Public anger usually starts with physical events – such as the 2011 austerity cut protests or perhaps even the emerging cost of living crisis – which then rises as people feel more and more helpless to do anything about it.
The fact that three-quarters of the public think the current Prime Minister is not trustworthy, and that almost as many think Rishi Sunak is a chancer, not a Chancellor is one thing. It is quite another that the Conservative party seem more self-interested through corruption and sleaze than genuinely helping those working households that are struggling, through no fault of their own.
This is a recipe for more political and economic instability. And like Gordon Brown’s 10pence tax debacle of 2008, no one really thought much of it when announced, but only reacted when it hit them in the wallet. In the same year, The Spectator wrote: “Looking back on the 10p tax debacle, the narrative becomes clear. It was Gordon Brown putting his ambition before the good of low-income earners. It was fiscal mismanagement on the largest scale. It was the moment Labour was wrenched from its roots. It was cynical, exploitative and needless. It was our Prime Minister at his very worst.”
The Conservative party has much to fear should the cost of living crisis turn into a winter of discontent. It could easily send them into a political void, with its ship sinking amid the shouts of said corruption and sleaze, especially with Boris Johnson at its helm.