Boris Johnson’s roller-coaster ride can't disguise UK's economic crunch

City mood turned sour after Bank of England warned of recession due to Ukraine war

Prince Charles told of challenging times ahead as he delivered the Queen's Speech to the British Parliament on Tuesday. Getty
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How things change. Only five months ago, major UK retailers were upgrading their profit forecasts for the year ahead. They’d just enjoyed a bumper holiday season, consumer confidence as the country emerged from the pandemic, was high, workers were returning to their offices, shopping districts were buzzing again, normality was returning, there were good grounds for optimism. In manufacturing, the signs were encouraging, with the promise of much capital investment and building projects. In the City, too, it was all systems go, on a flood of likely deals and IPOs.

Sure, there were problems with supply chains, partly Brexit-related, partly global. Businesses were complaining of staffing shortages. There were inflationary pressures and rates were heading upwards. None of it, though, was regarded as that awful.

Now look. Retail sales fell in April, the first decline in 15 months, and down from a 3.1 per cent rise the previous month. All that buoyancy, relative as it was, has disappeared. The British Retail Consortium has been tracking the economy with advisory firm KPMG. The BRC chief executive Helen Dickinson said that “the rising cost of living has crushed consumer confidence and put the brakes on consumer spending". Property analysts are saying demand that was pushing up values has spiked. Meanwhile, the Bank of England is warning of looming recession.

What’s changed? In a word, Ukraine. Russia’s invasion has exacerbated those underlying tensions. Prices that were already climbing are set to rise higher. Energy bills, for households and let us not forget, for industry and all businesses, are jumping upwards. Where it can be, investment has been put on hold; those big-money City plays, likewise, are on ice. Where there was promise, there is now uncertainty.

With that, too, is political instability. In the last few months, since those retailers were sounding so cheerful, “Partygate” has occurred. On one level, it's easy to be dismissive of the holding of parties by Boris Johnson and some of his colleagues in contravention of the lockdown rules. Compared with a war, for instance, it is poles apart. But on another, this is a scandal that has threatened his very leadership. And continues to do so – the latest twist being that the Opposition leader, Sir Keir Starmer, has been similarly accused and he has said that if he is fined then he will resign, thus throwing the spotlight on to Mr Johnson’s lack of integrity.

It’s possible the UK could end up without a leader of the Opposition and Prime Minister, in short order. That may not occur but the very prospect feeds into the mood of foreboding and gloom. What it does do is focus the minds of politicians and civil servants, to the extent they are talking of little else and this at a moment of national economic crisis.

That sense is not helped either by the sight of Prince Charles reading the Queen’s Speech. The monarch is elderly and increasingly frail, but she is the mother of the nation – even when others were behaving badly, she was a rock on which the country could depend. Her weakness contributes to the air of despondency and helps to undermine that all-important consumer confidence.

It’s difficult to see where the government goes. Mr Johnson promised in that Queen’s Speech to make ascending prices and bills his priority. His knee-jerk response would be to throw cash at the problem, as he did with Covid. Here, though, he has little wriggle-room as to make a genuine difference: where the funding would come from is far from clear. Taxes are already high, and his backbenchers are not going to allow him to push them higher; as Rishi Sunak, the Chancellor, will doubtless be telling him, there is little spare cash, especially as those pandemic measures must be paid for.

Mr Johnson may have to put projects on hold, something that as a natural carefree spender he will be reluctant to do. If he’s not careful it could prove costly electorally – his ‘Red Wall’ support among historically Labour seats in the North of England is holding up and it stayed reasonably solid in the recent local elections, but only for so long. He pledged "levelling up" and Northerners are looking for tangible proof of his seriousness.

In the Queen’s Speech and the debate that followed, Johnson spoke repeatedly of achieving “growth”. It’s the new mantra, not relying on government spending and intervention but throwing it back to enterprise, to the markets to do the rest. There was no detail offered as to where this expansion was going to come from. He spoke, again as he often does these days in that cavalier, broad brush, boosterish way of his, about the hundreds of thousands of highly-skilled new jobs being created, without saying what posts, where.

The Bank of England says the UK is slipping to recession; Johnson speaks of “growth” and adding vast numbers of high worth jobs. Go figure.

There are grounds for hope. The UK is still in the first flush of exiting Covid and there are two years of savings to be unleashed – many households are not as badly off as the national economic picture might suggest. Some spending may reduce, but other items, such as holidays and entertainment, could stay strong. While fuel bills are mounting, this is the beginning of the warmest period of the year in the UK when gas usage falls. If the Ukraine conflict was to end soon and fuel costs were to stabilise, that would provide some comfort – although it is by no means clear how the UK is going to safeguard its energy security in the future, at least in the short term.

Similarly, if a degree of certainty returned to the markets, the City would regain the spring in its step – those mandates and accompanying commissions would be back on.

The Brexit niggles must, surely, be resolved – although Northern Ireland is as intractable as ever. Who knows, the saga of who ate and drank what, when, where and crucially, how the event was described, may even come to an end. It has to, eventually. Whether that heralds a change in Prime Minister, who knows. Nobody thought life under Mr Johnson was going to be dull, but goodness, the country could do without being on a permanent roller-coaster.

Published: May 11, 2022, 8:16 AM