Another Bumpy Autumn Ahead
Looking over the water at ‘Broken Britain’, as media commentators are now calling it, its Prime Minister and Chancellor are missing in action on multiple holidays, knowing full well they are in the last days of their time in office.
Inflation continues to hit 40-year highs as the impact of the Russian invasion pushes energy and food prices soaring higher. Not to mention recent reports in The Guardian that crops are failing in many parts of the UK due to drought. All of this has led to British consumer confidence dropping to a record low.
Aside from energy prices, harvests across Europe have been hugely disrupted by the hot weather before you even start looking at grain stockpiles blockaded in Ukrainian ports. In every country on mainland Europe, newspapers have been carrying pictures of rivers and lakes at record low levels. The situation was so bad in Germany that essential freight traffic on the River Rhine had to be suspended in a serious disruption to the economy.
The real cost of living will bite home in October, weeks after its new Prime Minister settles into office when people start heating their homes and the disruption to global grain supplies becomes a disruption to global food production.
Here in the Eurozone, the cost of living soars higher as the energy crisis deepens with another surge in natural gas prices across Europe and the US. This clearly threatens to the world’s largest economies with recession.
The latest figures for most of the world’s largest economies make for worrying reading, with price pressures surging to the highest level in many decades.
Eurozone gas markets saw a spike as market traders raced to secure stocks ahead of October. Prices are expected to treble in the weeks ahead, according to many commentators, from extremely elevated levels in June. Germany announced this week that it is slashing VAT on gas from 19% to 7%.
Many well-placed experts believe that Governments will have to prepare a subsidy for utility costs as pressure mounts. A good number have already done so and are being locked into a cycle of giving more and more, with political pressure mounting on them to tackle the cost of living crisis. This is worrying economists who are fearful that not only are Government subsidies unsustainable and a major burden on public finances, but that they will also fuel further inflation.
Governments will be under pressure to spend more to tackle inflation and help families under pressure, but there will be a serious political price to pay when it is time to get rid of these supports.
Meanwhile, in China, they are starting to demolish major unfinished building projects as the property sector tanks and the construction sector stalls. In Ireland and Europe, huge building materials and labour cost increases have caused so much uncertainty for property developers that many projects are stalled.
In August 2020 and August 2021, the shifting sands of the Covid pandemic were leading us to warn of bumpy autumns ahead. Once again, it is looking decidedly turbulent.
Like Prime Minister Johnson and Chancellor Zahawi, the Irish Government is also on holiday and it will be interesting to see how they react to continuing global economic shocks in the Budget in September.