2023: Britain’s Potential Crises
Prime Minister Rishi Sunak has admitted that “not all of Britain’s problems will go away in 2023”.
The United Kingdom has found itself in a difficult time since the COVID-19 pandemic. The standard of living declined 4.3% in 2022, house prices became unaffordable, inflation rates are running rampant, and the revolving door at 10 Downing Street has done little to nothing to alleviate the problems.
However, new Prime Minister Rishi Sunak has recently pledged to tackle these problems as a positive introduction to his premiership. He has outlined his five immediate priorities:
1. Halve inflation
2. Grow the economy
3. Reduce national debt
4. Reduce NHS waiting lists
5. Reduce illegal immigration
Whilst it is refreshingly positive to see a Prime Minister eager for accountability, the UK may find that its issues will only be compounded in 2023 – a prediction that Sunak himself has affirmed.
But what are the main crises we face this year?
Sadly, economic recession seems to be a certainty going into 2023. The ‘perfect storm’ of failing economic conditions, such as rampant inflation and high interest rates, is set to significantly damage the UK’s economy, with a 1.2% contraction of real GDP (1) over the course of the year.
Whilst a recession will not be unique to the UK, with 2 out of 3 economists predicting global financial strife this year (2), we are expected to fare the worst. Financial giants Allianz and Goldman Sachs have predicted the UK to suffer the worst and longest recession of all the G7 countries, a symptom of the policy failings of Liz Truss in 2022 (3)
This will intensify the squeeze on household incomes, whilst higher borrowing costs and soaring food and energy prices compound the issue.
Inflation in the UK will be one of the greatest concerns for the Government and financial institutions.
The UK’s inflation rate has been high since the COVID-19 pandemic, with October 2022’s 11.1% being the highest in 40 years (4). The rate currently sits at 9.2% – considerably higher than the Bank of England’s 2% target. (5)
The Bank of England expects the inflation rate to remain well above 3% for the entirety of 2023, despite predictions of a rapid fall in Q1-Q2. With their 2% target only expected to be met in 2025 at the earliest (6), Britain’s citizens will see their spending power reduced as real wages fail to keep up with the inflation rate.
3. The Housing Market
The reduced spending power of the British people will have a knock-on effect on the value of goods and services.
One of the primary areas to feel this will be the housing market. The housing market, like other sectors, has been tumultuous since the pandemic, with 7/10 Britons believing that it was in crisis in 2022 and no difference in opinion existing between renters and owners.
The crisis is a result of high interest rates set by the bank of England to combat inflation. Interest rates are the proportions of a loan that are charged to the borrower upon repayment. These are kept high by the Bank of England to discourage borrowing, thus reducing the amount of disposable income people have and alleviating the issue of high spending that drives inflation.
The reduced ability to take out mortgages means less demand for housing. This, in theory, should translates into property value and a decrease in house prices. In November 2022 alone, house prices dropped 2.3% – the most since the 2008 crash.
Although it may seem like a positive that houses prices are declining, therefore making them more affordable, a reduction in property value reduces the net worth of homeowners, which in turn reduces the overall spending power of the population.
With the cost-of-living crisis draining the British public of its disposable income, the Government needs to look towards alternate, renewable energy sources that can be sustained for future generations.
The war in Ukraine has demonstrated to Britain, and the world, that fossil fuel is not sustainable in the long term. Natural, finite resources are currently gatekept by global superpowers and Russia’s invasion of Ukraine demonstrated that relations with these countries can be volatile. Accordingly, it is important that Britain learns to generate its own sources of energy from our natural environment, such as wind, water, or solar. This is a concern at the foreground of the Government’s priorities, with Rishi Sunak ending the ban on new onshore wind projects in December.
Furthermore, Sunak has started his premiership by clamping down on ‘greenwashing’ projects – which is the mischaracterisation of operations or investments as ‘green’ to make them more attractive. Whilst this will reduce the number of ‘green’ investments available, thus cooling supply, in the long term it will ensure that there are more genuinely beneficial investments for institutions to support. This will have a positive effect on the UK economy in years to come, as a greater quantity of ESG compliant businesses and investments will move into the foreground.
Many may have thought the war in Ukraine was to be short lived, however, as experts predict Putin to line up a viciously powerful counteroffensive, it is becoming increasingly clear that that is not to be.
With Russia’s financial and technological superiority, it is believed that Putin will not stop until he achieves some sort of agreeable victory. This means that the war will continue until one of the sides concede – an option that Zelensky and other European leaders have vehemently rejected.
Subsequently, the continuation of the war will continue to pose supply-side challenges to global trade, as Russia continues to gatekeep much of its natural resource supply. As aforementioned, this will have affect government policy and will encourage states towards more sustainable, less reliant practices, with Britain being no exception.
It is most certainly going to be a tough year for the United Kingdom. Whilst geopolitical circumstances are encouraging the nation towards more sustainable energy sources and practices, the ‘perfect storm’ of failing economic conditions is set to severely impact the public and economy. Although the jury is still out for Sunak, and his five priorities are a welcome encouragement of accountability, in his own words ‘the UK’s problems will not all go away in 2023’.