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A specter is haunting the British economy, and it's wearing the unmistakable cloak of recession. Economic experts have issued stern warnings to British Prime Minister Rishi Sunak, pointing to 2024 as the year the UK might find itself in a financial quagmire, as soaring inflation threatens to push interest rates above 5 percent.
The Bank of England, the UK's financial bulwark, could be coerced into an unpleasant predicament, potentially steering the nation into recession to bridle the runaway inflation. Such a move could be a bitter pill to swallow for millions already grappling with a mounting cost of living crisis.
The Cost of Living Crisis and its Political Ramifications
In the wake of disconcerting economic developments this past week, Chancellor Jeremy Hunt's assertion that such a price would have to be paid was met with significant criticism.
This contentious statement came despite the visible hardships families were enduring due to the spiraling cost of living. Keir Starmer, the Labour leader, voiced concerns over the plight of common citizens. “Almost nobody feels better off after 13 years of this government.
I’m really worried about mortgages. People are struggling to pay the bills. Mortgages are a big part of that,” Starmer pointed out. Jagjit Chadha, director of the National Institute for Economic and Social Research, warned that the rising interest rates could nudge the UK towards an unwelcome recession.
The current scenario has put Rishi Sunak's pledge to halve inflation this year under the microscope, particularly as financial markets have hiked the cost of British government borrowing to levels not seen since Liz Truss's tenure as Prime Minister.
An Uphill Task Ahead for the Government
Andrew Sentance, a former policymaker at the Bank of England, opined that Sunak's pledge was misguided, given that managing inflation has been the central bank's responsibility since it was granted independence by Gordon Brown in 1997.
Echoing the Clinton mantra, 'It's the economy, stupid', Sentence suggested that a struggling economy could lead to a challenging political situation for the government in the coming year. “The public can’t sack the governor of the Bank, so they express their dissatisfaction with the government”.
Just this week, official data revealed that the UK's annual inflation rate declined by less than expected, sitting at 8.7 percent in April. The unimpressive inflation figures triggered turbulence in money markets, and according to financial data firm Moneyfacts, led to the withdrawal of 38 mortgage products.
