A few days away from electing a new prime minister, the United Kingdom must rethink its role in the world to overcome the crisis

O UK this week reached the highest level of inflation in 40 years. The country reached 10.1% year-on-year in July, the Office for National Statistics (ONS) reported. The reading was above the forecasts of economists consulted in a Reuters poll, who had expected inflation to reach 9.8% in the seventh month of the year. In addition to this negative result, the country is also facing other problems, such as the biggest strike for salary readjustments in 35 years, a movement that began in June and involves the transport, mail and ports sectors. On Friday the 19th, protests against high inflation in the United Kingdom paralyzed almost all public transport in the capital, London. All this comes just days before the election of the new prime minister, who will replace Boris Johnson, who resigned from office in early July after several scandals involving his government and the departure of high-ranking officials. Johnson’s successor will be announced on September 5, and two names are vying for the position: Rishi Sunak, the former finance minister, and Liz Truss, the foreign minister. Whoever wins will have a great challenge ahead..

Experts point out that there are reasons behind these negative events that the UK has presented. “More and more nations, government management and national states are undergoing a process of complexity”, explains Eduardo Fayet, professor of Institutional and Governmental Relations at Universidade Presbiteriana Mackenzie. “This means that the economies of cities are more complex”, he continues. In other words, when this factor is added to wars, internal conflicts, multilateral and bilateral relations, there is an impact on inflation and on the production chain process, for example. The professor explains that the increase in food prices, due to climate change and the new reorganization of food, fuel and energy in Europe are factors that had already impacted British inflation before the war – the conflict in Eastern Europe involving Russia and Ukraine only made the situation worse. “Food is up in particular, especially bakery, dairy, meat and vegetables,” explained Grant Fitzner, chief economist at ONS, on Twitter. The price rise could exceed 13% in October, when drastic increases in energy prices are forecast, according to Bank of England forecasts. In July, because of inflation, fast-food chain McDonald’s announced that it would raise the price of cheeseburgers by 20%, the first increase in 14 years. “We are living in incredibly challenging times,” said the company’s CEO, Alistair Macrow. It wasn’t just this popular diner that started to reconsider its role in the UK. According to the newspaper teamsStarbucks considered selling its operations in the region.

UK hits highest inflation in 40 years │REUTERS/Neil Hall

It’s not just the UK that is experiencing high inflation. All of Europe and the world are being affected because of the war between Russia and Ukraine and climate change. However, two factors make there are signs that he will continue to fight rising inflation for longer than others, as he faces a cost-of-living crisis, with wages that do not keep up with inflation. First, because “British inflation is supply, and it is generated by the lack of product and product supply in a competitive way”, explains Fayet. Igor Lucena, economist and Doctor of International Relations, links part of the United Kingdom’s problem to Brexit, that is, the nation’s exit from the European Union. “When he leaves, he is no longer part of the common market,” he explains. As a result, foreign workers are restricted, which causes a lack of employees and “raises the prices of labor and inputs that were brought from the European Union to the UK”. For him, this meant that inflation “had an impact before any pandemic crisis and the conflict in Ukraine”. Having isolated itself, explains the expert, the country lost any kind of support or subsidized values ​​from the European Union, causing higher costs, which, in fact, means that the United Kingdom has an even higher inflation than other G7 countries.

For specialists, one way for the nation to improve the economic situation is to bet on “reestablishing supply and supply”, explains Eduardo Fayet. However, for that, it will be necessary “to identify other frontiers to offer and, to reduce, it will have to reestablish a set of reorganization in the productive chains”. Lucena says that the solution is to bet on “increased interest rates, a classic macroeconomic recipe”, even if this reduces “economic activity and may harm the level of employment”. He also talks about advances in negotiations with other countries where economic products can enter the UK with less tax and help national products to have a lower price readjustment. The doctor in International Relations also says that the nation has been making a mistake from the point of view of geoeconomics and participation in the global economy. “The fact that they have not joined the euro reduces their export capacity. The pound was strong but is falling out of favor and so far the exit from the Brexit showed no benefit to the economy. Despite having already been the main global power, it lost ground to the US and abandoned one of the main projects that would base its formation in world geopolitics that was the European Union”, he explains, adding that they need to “rethink their role in the world”. To help the population know the rate of inflation, the Office of National Statistics (ONS) has made available a guide so that people can know how they are being affected by economic changes.

We’ve updated our calculator which estimates a personal inflation rate based on what your household spends money on.

How is inflation affecting your household costs? 📈

Explore your personal inflation rate ⬇️

— Office for National Statistics (ONS) (@ONS) August 17, 2022

Does inflation impact the choice of the next prime minister?

On the 5th of September, the UK will meet its next premier. Former Finance Minister Rishi Sunak and Foreign Minister Liz Truss are in the final stages of the race to succeed former Prime Minister Boris Johnson. The finalists will compete for the mail-in votes of the 200,000-member Conservative Party. “The economic issue has an impact on the process of choosing and maintaining the English Conservative Party”, says Eduardo Fayet, adding that this will be the most important challenge that the new prime minister will face. Lucena, in turn, highlights that both candidates were part of Boris Johnson’s government. For that reason, the two candidates are also responsible “for the whole situation in the UK”. But, he adds that “the negative impact may be more on Sunak, because he was the Minister of Economy. However, other problems will also arise, such as the possible unification of the Irelands, which remain in the European Union, the need to establish how the flow of people and goods between Northern Ireland and Southern Ireland will be and deal with the new Scottish independence referendum.