As the country closes the year, PM Sunak faces increasing difficulties. While strikes have been ongoing for months in many sectors, they are intensifying as workers struggle to afford higher living expenses. The BOE could face a new problem: the cost-wage loop. This could get worse as the UK transitions from stagflation to full-blown recession.
The central bankers fear that a wage-price spiral could lead to hyperinflation, which can destabilize the economy. That’s when prices rise, prompting workers to demand higher pay, which means goods and services cost more to produce, pushing up inflation, and the cycle repeats. The unions that have fought to strike so far have reached agreements for pay increases that at least match or exceed the annual inflation rate. While this helps the workers deal with the cost of living crisis, it puts additional strain on the country’s finances.
Something’s got to give
The most recent CBI report states that UK business investment is still at 9% below pre-pandemic levels. According to the report, productivity will remain at 2019 levels well into 2024. Inflation can be defined as the mismatch of too much money and/or not enough…