After brazening it out over multiple scandals that hit his Cabinet in recent months, Boris Johnson was finally forced to step down as Britain’s Prime Minister. Even as the Conservative Party goes into a huddle to choose Johnson’s successor, it does appear that the political circus of the last few days has its part-origins in a stagflationary UK economy — where growth has plunged into negative territory and inflation, at over 9 per cent, is at four-decade highs. As the world’s fifth largest economy in nominal GDP terms, and a significant ally of the US in the ongoing war between Ukraine and Russia, the impact of events in Britain will be felt all over the world – more so when its economy is in serious trouble.

Britain reported back-to-back GDP contraction in March and April, the first such decline since March and April 2020. The OECD has said that Britain’s growth will be down to zero in 2023, from 3.6 per cent this year, its worst forecast for any G-20 country save Russia. The pound is down 11.37 per cent against the dollar so far in 2022, amongst the worst performing G10 currencies, adding to the inflation burden. While unemployment has fallen since December 2020, it is because of a fall in numbers reporting to work. This is adding to wage-led inflation, amidst a paradoxical fall in consumption. Meanwhile, there is a lack of consensus among the Conservatives on how to salvage the situation. Conservatives are traditionally inclined to favour a balanced budget with low taxes, but this has become a tall ask in the wake of the pandemic, which has forced a rise in public spending. The Office for Budget Responsibility (OBR) has observed recently that Britain’s public debt is unsustainable at over 90 per cent of its GDP, against 75 per cent before the pandemic. Despite being Europe’s second largest oil and gas producer after Norway, UK has been impacted by the spike in energy prices. As the OBR observes in its March report, “Gas and oil together supplied 76 per cent of total UK energy consumption in 2019 compared to a European average of 57 per cent.” It is another matter that its major gas suppliers are Qatar and US rather than Russia. This factor perhaps played a part in Johnson being proactive in support of Ukraine. Johnson’s exit may weaken the US’ hand in Ukraine, if the new leadership takes a detached view of the conflict. With the US too staring at the prospect of a recession later this year, global economic prospects for 2023 look pretty grim indeed. India’s ‘early harvest’ FTA with Britain is unlikely to materialise before Diwali, as planned before. It was meant to double bilateral trade by 2030, now at about $50 billion, including services trade at $35 billion.

There is a growing perception that Britain is in a particularly bad way because of Brexit. The OBR has said that its global trade will be 15 per cent less than it would have been as an EU partner. The Peterson Institute for International Economics as well as OECD have argued that Britain’s post-pandemic recovery has been worse than most of its developed country peers. It has witnessed a fall in FDI flows and immigration, while its productivity has been under stress. A new leadership will be under pressure to course-correct, and redraw global trade ties. But for now, a struggling UK economy and its uncertain political environment is not good news for the world.

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