UK Economic Crisis: The economic system in Britain is chaotic.. Where did the crisis start?

Britain, one of the largest economies in the world, is now in deep crisis. With the resignation of Liz Truss, it is understood that it has reached its peak.
“Not everyone may support my policies. But, everyone benefits from them. Economic development of the country is my only priority. A tax cut at this time is not only morally but also economically the right decision. It is clear that we will regain our former glory” were the key comments of Liz Truss’s first speech after taking charge as Prime Minister.

“We realize that we have made mistakes. I’m sorry for those mistakes. Already fixed them. Financial stability measures have been renewed. We will work for the welfare of the people” were the comments made by Liz Truss after the failure of the mini budget.

“I could not fulfill the promises given. That’s why I’m stepping down” were the words of Liz Truss while announcing her resignation.

All this happened in just 44 days. Based on this, it can be said that the economy of Britain is in a crisis (UK Economic Crisis). If the Prime Minister himself admitted that he could not fulfill his promises within a month and a half of coming to power, then one can understand the chaos in the country’s economy. And what are the reasons that led to this situation?

The financial crisis of 2008.

Over the past 500 years, the United Kingdom has been a bastion of stability. World wars, colonization of countries around the world, pandemics, epidemics. It attracted international banks.

All the head offices of international companies like HSBC, Barclays and Standard Chartered are located there. After the financial crisis of 2008, all these are facing difficult conditions. As a solution to this, the British government thought of putting more money in the hands of the people. For example, measures have been taken to reduce home loan rates from 6.3 percent to 2.5 percent.

A few months ago interest rates fell to 1.25 percent. Due to this, the availability of money in the system increased and the purchasing power of the people increased. As a result, conditions have arisen that lead to inflation. In response to this, the UK government has taken steps. Especially since the covid-19 crisis has pushed lending rates to a 14-year high. As a result, families who have taken loans have to spend almost a third of their income on installment payments.

Brexit..

It is known that Britain was once a part of the European Union. With this, there were many trade concessions and incentives. On the other hand, skilled human resources are very important for the growth of a country. Before Brexit, many professionals in European countries moved to the UK to work freely. But, their arrival stopped after Brexit. Some companies left Britain for fear of losing the European market. As a result, the cost of manufacturing increased and this became one of the reasons that led to inflation. At the same time, the UK economy reached a stage of ‘stagflation’ due to the outbreak of Corona. (ie unemployment rises, economic growth stagnates, inflation rises)

The new government

Britain’s economic woes worsened before Boris Johnson stepped down as Prime Minister. His successor Liz Truss’s experiments in tax reform and deregulation of businesses failed. The 45 percent tax on the rich has been significantly reduced. He said that the corporate tax will be reduced from 25 percent to 19 percent from next year. This led to public outrage. If the tax cuts are implemented, the revenue will decrease and the government will have to incur new debts. The Trust has not revealed any clear details about where the additional funds will be raised from. As these decisions became controversial, Liz Truss changed her mind. The fault was blamed on the finance minister and he was sacked. It was announced that 45 percent tax on the rich and 25 percent corporate tax will continue.

This is the current situation.

Stability has continued to be Britain’s main strength. Now the same is in danger. With this, investors started withdrawing investments. As a result, the value of the currency fell sharply. The International Monetary Fund (IMF) has also warned Britain about the country’s economic situation. The current financial crisis is one of the most severe in British history. The war between Ukraine and Russia has seriously damaged the country’s economy. Inflation reached a 40-year high of 9.90 percent. Electricity bills have increased by more than 100 percent. The pound has fallen 24 percent recently to become the worst performing currency. The stoppage of gas supply from Russia has completely damaged Britain’s economy.

At the same time, with the arrival of winter, fuel consumption has increased. As a result, the prices have gone up a lot. However, as the supply of gas and oil from Russia stopped, the cost of electricity increased and the losses of the companies increased. With this, the electricity price cap has been increased to 520 pounds per megawatt hour (MWH) in the latest budget. Moreover, the same price has been fixed for all without distinction between the rich and the poor. This caused dissatisfaction among the people. From own party