IBNS: Rishi Sunak, the former chancellor of the UK’s treasury has become the country’s Prime Minister after Liz Truss quit the role in just 45 days as 40-year-high inflation gripped the nation, dealing a blow to the households that have been already cutting down daily expenses, and now several even plan to stay away from Christmas shopping.
Sunak, 42, had a comparatively easier assent than his previous attempt, as his other rivals stepped aside.
This is the second time that inflation matched the four-decade-old figures, the last time being in July.
Speaking outside the prime minister’s residence, Sunak said “economic stability and confidence” at the heart of his agenda and vowed to confront the “profound economic crisis” with compassion and lead a government of “integrity, professionalism and accountability.”
The Office for National Statistics said the consumer price index (CPI) increased by 10.1 percent in annual terms in September. In July, it had unexpectedly dipped to 9.9 percent on the back of a fuel price decline.
The tumultuous economic situation forced Liz Truss out of prime ministership after her economic plan sent shockwaves through markets, drew the wrath of her colleagues and the public, and diminished her own political standing.
Truss departed after making a public statement outside the prime minister’s 10 Downing Street office, seven weeks after she was appointed prime minister.
The price of everything that has to do with the common man is soaring in the UK. Price rises in food, energy, and transport are driving inflation to a super-high level.
Food shot up 14.6% year-on-year, transport jumped 10.9% compared to last year, while the price of furniture and household goods grew 10.8%.
September’s inflation rate points out the severity of the U.K.’s inflation crisis and comes as the country battles a period of economic volatility.
News agency AFP earlier reported that European stocks and the pound climbed as markets awaited confirmation of Sunak’s elevation.
According to Bloomberg, UK’s economy has been further hit by Liz Truss’s tenure causing a 2 percent smaller GDP compared to the forecast before her government unveiled controversial tax cuts on September 23, fresh projections released on Friday revealed.
That leaves the economy on track for a contraction of 1.4 percent in 2023, compared to 0.5 percent growth predicted in early September, Bloomberg said.
UK’s credit score was revised to negative by Moody’s Investors Service on Friday. The rating firm said the change in the outlook was driven by “heightened unpredictability in policymaking” amid weaker growth prospects and high inflation and “risks to debt affordability from likely higher borrowing.”
The economy is slowing down and at risk of falling into a recession.
Why are prices galloping?
British households are struggling to keep up with increased energy prices and a key reason behind skyrocketing prices. Demand for oil and gas soared after the end of Covid restrictions but the Ukraine war constricted oil and gas supplies from Russia.
Food prices are going up as the war in Ukraine cut down the amount of grain available and pushed up costs.
According to reports, food and non-alcoholic drinks prices spiked by 14.6 percent in the year to September.
It hit its highest level since April 1980, with staples such as bread, pasta, butter, and eggs all seeing a big increase.
When will inflation go down?
Experts opine that lower inflation does not mean prices will drop but only means they will stop moving up as fast.
The Bank of England says it expects inflation to “peak at 11% and then remain above 10% for a few months before starting to come down”. UK’s central bank predicts that inflation will be close to the official target of 2% in “around two years”, said media reports.
There is no certainty when energy prices will go down therefore it is hard to predict what will happen, say reports.
Earlier, Britain’s Finance Minister Jeremy Hunt said in a statement that “help for the most vulnerable” will be a priority as the U.K. fights high inflation rates, along with “delivering wider economic stability and driving long-term growth that will help everyone.”
Liz Truss had apologized for “mistakes” that had caused severe market turbulence.
She chose Jeremy Hunt, a supporter of Sunak, who reversed the majority of the tax cuts introduced by his predecessor, Kwasi Kwarteng.
After becoming Prime Minister today, Sunak retained Hunt even as he removed several minsiters.
Pessimism has gripped the people of the UK about the price of groceries, with 84 percent saying they spent the same or more on groceries in the last three months, according to McKinsey & Company.
“The level of inflation is already driving consumers to think differently about Christmas with 58% planning to cut back on Christmas spending and 8% not planning to do any shopping at all,” Samantha Phillips, a partner at McKinsey, said in a research note.
Media reports said pensioners in the UK are yet to get assurance from the government about whether they will rise in line with prices next year.
Earlier, new finance minister Jeremy Hunt limited reduced the scope of the scheme supporting household and business energy bills to six months, from two years previously.
Financial market fallout arising out of Truss’s policy announcement is considered directly responsible for households holds face rising costs.
Even before the recent tumultuous political and financial situation, Britain was grappling because of the spike in European natural gas prices caused by Russia’s invasion of Ukraine, adding to the Covid-19 supply-chain disruptions and labour shortages, multiplying the difficulties of the common people and impacting their living standards.
