As the country closes the year, PM Sunak faces increasing difficulties. While strikes have been ongoing for months in many sectors, they have become more severe recently as workers struggle to afford higher living expenses. This opens up a problem for the BOE, a cost-wage spiral. 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 latest CBI report shows that UK business investment has dropped 9% compared to pre-pandemic levels. It was also predicted that productivity would continue to fall well below 2019 levels into 2024. Inflation can be defined as the mismatch of too much money and/or not enough…