OP 27 October, 2022 - 08:49 AM
LONDON—New U.K. Prime Minister Rishi Sunak has helped calm financial markets by convincing investors that he won’t jeopardize the country’s financial stability. But he now faces the more daunting task of convincing them, and ordinary Britons, that he can steer the economy through stagflation and a looming winter of discontent.
Mr. Sunak faced Parliament on Wednesday for the first time as prime minister after delaying the announcement of his government’s spending plans to Nov. 17 from Oct. 31 to give him more time to run through the numbers with Treasury chief Jeremy Hunt.
“We will have to take difficult decisions to restore economic stability and confidence,” Mr. Sunak told lawmakers.
The U.K. economy is expected to enter a shallow but long recession in the coming months. Inflation in the U.K. is higher than in most other industrialized nations because the country has suffered from a Europe-style energy price shock from the war in Ukraine along with a U.S.-style labor shortage from the pandemic, as well as a departure from the European Union that has driven up labor costs for businesses. The pound has slid nearly 15% against the U.S. dollar this year, stoking inflation by making imports more expensive.
Capital Economics expects U.K. output to fall 1.5% in 2023, in line with France, but a smaller drop than the 2.5% decline it projects for Germany, which is more reliant on energy-intensive factories. U.K. inflation rose to 10.1% in September and is expected to peak at about 11% in the coming months.
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Mr. Sunak faced Parliament on Wednesday for the first time as prime minister after delaying the announcement of his government’s spending plans to Nov. 17 from Oct. 31 to give him more time to run through the numbers with Treasury chief Jeremy Hunt.
“We will have to take difficult decisions to restore economic stability and confidence,” Mr. Sunak told lawmakers.
The U.K. economy is expected to enter a shallow but long recession in the coming months. Inflation in the U.K. is higher than in most other industrialized nations because the country has suffered from a Europe-style energy price shock from the war in Ukraine along with a U.S.-style labor shortage from the pandemic, as well as a departure from the European Union that has driven up labor costs for businesses. The pound has slid nearly 15% against the U.S. dollar this year, stoking inflation by making imports more expensive.
Capital Economics expects U.K. output to fall 1.5% in 2023, in line with France, but a smaller drop than the 2.5% decline it projects for Germany, which is more reliant on energy-intensive factories. U.K. inflation rose to 10.1% in September and is expected to peak at about 11% in the coming months.
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