The United Kingdom or Britain, a superpower of the earlier times and under whose reign “Sun never used to set” is on the verge of economic collapse. With the resignation of the current Prime Minister Liz Truss after a mere 44 days of being in power, the question is looming before everyone —Will the former Superpower survive this economic crisis or going to collapse?
While the ruling Conservative Party is going to elect its new leader on the 28th of October 2022, the challenge still remains at large and the economic crisis is deepening with each passing day. The tell-tale signs were visible right in August 2022 and things became clear with the Mini Budget of Sep 2022 that the road ahead is not smooth. International Monetary Fund (IMF) has predicted the growth of the UK in 2023 to be less than 0.3% which may be catastrophic for the country, especially in the current wake of high inflation and overall recession. Let us understand what were the reasons for Mighty Britain’s economic collapse.
Effects of Brexit– While the immediate effects of Brexit over the British economy were well anticipated, the situation worsened in April 2019 and beyond when multinational companies transferred over $1Trillion out of British banks and further transferred nearly $150Bn of their assets out of the country. This created serious liquidity crunch before the financial institutions who were already facing crisis due to change of currency. Foreign direct investment reduced drastically and British Property Market which used to be the most lucrative in the entire Europe recorded massive negative growth. All this led to a steep fall in economy which became irreversible in 2022.
Rise of Islamic Hardliners & creating an unsafe environment– Over last few decades, United Kingdom especially London has become a favourite place for Islamic hardliners to come and settle. Birmingham is called a mini-Pakistan and it is difficult to spot any sign of Britain in this area. In recent past, there have been attacks on various religious institutions of Hindus and other communities and these communities were targeted by Islamic hardliners. At this time, no concrete action from the government (apparently to appease Muslim community) came as a surprise & discouraged investors to come to Britain.
COVID-19 Pandemic– As we know that post Brexit and after 2019 crisis, when the country had a window to recover itself, the COVID-19 pandemic stuck which created multiple dents to the economy of the country. While the overall GDP reduced, the financial burden on the exchequer increased drastically resulting in a misalignment between the income and government spendings. Prolonged impact of COVID-19 related issues for over two years destroyed all hopes of the revival of the economy.
Russia-Ukraine Conflict– Russia Ukraine conflict has created landslide impact on the world economy however unlike other countries, Britain got affected in two ways. On one hand it had the overall impact over the economy due to the soaring energy prices but since Britain is an integral part of NATO, it also had to cough out major chunk of money as well as defence equipment’s and War machines to be given to Ukraine as part of aid package. It is estimated that the overall effect of Russia-Ukraine conflict on the economy of Britain itself is more than $50Bn in the last six months itself.
Wrong decisions by the British government and its officials– Repeatedly again and again, British officials kept making wrong decisions. One of the example is the Mini Budget of Sep 2022 where the Finance Minister Kwasi Kwarteng announced freezing of energy bills and pledged 45 Billion pounds of tax cuts which were practically not possible. He assumed that if people have more money in hand, their purchasing power will increase, consumer spending will rise and as a result, more and more businesses will be attracted to invest in his country. However, what happened was a serious fall out. Due to this step, the markets became volatile, the currency got depreciated and to handle that, banks had to increase their mortgage rates. He paid the price and was sacked after 38 days in power.
The situation now is very much grim. On one hand the economic outlook of IMF about Britain is not very good and on the other hand, there is no silver line visible in the dark clouds. Ukraine Crisis is further deepening with Russian President Putin threatening of a nuclear strike and the unexpected behaviour of OPEC countries has created a big question mark on the future of energy prices. British Financial institutions are facing liquidity crunch while the London Stock exchange is sliding massively with each passing day. Rishi Sunak or Boris Johnson whomsoever may become the next prime minister is not going to solve the problem. Britain has to take some strong, stern and difficult decisions it at all their leadership is serious about resolving the current crisis.
Amit Bansal is a Defence Strategist with keen interests in International Relations and Internal Security. He is also an author, blogger, and poet.
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