Doha, November 26 (QNA) – Qatar National Bank (QNB) said Saturday that weak supply and demand factors would negatively impact growth in the UK, highlighting the country’s latest significant fluctuations despite its reputation for sound economic management.
QNB’s weekly report said that the mini-budget was the main error committed by Liz Truss, who set a new record as the shortest-serving prime minister.
The Truss’ mini-budget, from a policy formation perspective, attempted to make major policy changes and included a wider fiscal deficit due to unfunded tax cuts, the report said.
The report highlighted the financial markets’ powerful interaction with the sharp depreciation in the value of the Pound Sterling, with a sharp rise in revenues of British government bonds, adding that the Bank of England had to intervene to protect retirement funds from bankruptcy, with its debt-financed positions having assumed that senior bond yields would remain low.
As a result, Liz Truss stepped down and Rishi Sunak assumed the post on Oct. 25 in a country facing four economic headwinds – the tightened fiscal policy, the tightened monetary policy, the energy crisis that is developing in Europe, in addition to a shortage in employment due to Brexit, the report noted.
The report highlighted Sunak’s announcement of a significant tightening of fiscal policy, effectively reversing all of the changes in Truss’s policy. Sunak along with his adviser, Jeremy Hunt, are seeking to secure a total of 50 billion pounds through tax increases and spending cuts to balance the books.
It also highlighted that the Bank of England has to raise interest rates aggressively to rein in inflation. The increase of 75 basis points in Nov. is likely to be followed by additional increases of 50 basis points in both Dec. and Feb., which will push interest rates to more than four percent in 2023. This tightening of monetary policy will coincide with the corresponding tightening of fiscal policy.
Brexit gave the UK greater flexibility in policies, allowing it to be more proactive in responding to the crisis, including through faster implementation of support measures for households and companies compared to European Union countries. However, rising energy prices and a drain on government finances continue to be a headwind to the economic outlook, the report added.
The report added that the supply side of the UK economy remains constrained by the labor shortage, which is one of the repercussions of the UK’s decision to leave the EU.
The UK’s agricultural, manufacturing and services sectors were accustomed to the abundance of low-cost labor that came from countries in central and eastern Europe. But that changed with Brexit and the exclusion of the UK from the EU’s policy on the free labor movement.
The report concluded that PM Sunak is leading a country that is currently exposed to many economic uncertainties that will continue to disrupt supply and demand at the same time. (QNA)