Britain’s economy is in an extreme crisis at the moment. Rising inflation, increases to business tax rates and a highly unstable job market all add to this perfect storm. In July, UK inflation surged to almost twice the Bank of England’s 2% target. It peaked at its highest level since January 2022. With economic pressures worsening, several experts now expect inflation to breach 4% in the next month. They do project it to cool somewhat as we move toward the end of the year.
As one five business leaders put it, Raised business taxes are straining almost every sector. This context is exacerbating the challenges that the UK already faces in its economic recovery. These increases have created a difficult climate for businesses, affecting their bottom line and limiting future expansion. At the same time, soaring gilt yields are throwing more obstacles in front of the economy, tightening financial conditions for both consumers and investors.
That shift has led the jobs market to a remarkable low point, with employment now below where it was at the start of the pandemic. All of these industries are experiencing a perception of impending job availability collapse, increasing anxiety over economic trajectory and talent sustainability. The challenges that continue to plague our labor market add to the heavy burden of this economic landscape, adding even more urgency for our policymakers.
The Bank of England is now under intense political and public scrutiny as it finds its feet in tackling this uncertain economic landscape. Now, with inflation continuing to climb, that pressure is only growing. This powerful combination creates a compelling imperative to hold interest rates down for as long as possible. Swap markets indicate that the first-rate cuts, if they come at all, aren’t likely until March 2026. That could signal a long runway of high interest rates to come.
On balance, contributing to this over bullish sentiment, and despite such pressures, forecasters expect the pound to remain buoyantly supported for most of 2023. That resilience had to be pretty reassuring, though, given the ongoing economic uncertainty even at that time. At a time when businesses face historic elevated tax burdens and rapidly changing market conditions, there is promise for leveling the playing field.