The United Kingdom has been greatly affected by Queen Elizabeth II’s passing on Thursday, September 8. A 10-day period of national mourning just came to an end. Within this period, nationwide closures taking place on a holiday to commemorate the late monarch’s funeral. As a result of the holidays of nation mourns, September GDP to decline 0.2% less than earlier forecast for UK economy.
UK economy before queen Elizabeth’s death
In November 2021, output was higher than before the pandemic. But high frequency statistics point to a slowdown in the economy. March 2022 saw a 0.1% monthly GDP contraction, down from 0.7% in January and no increase in February. Early in 2022, COVID travel restrictions were loosened, which caused a huge increase in holiday reservations. Also the production fell as a result of problems with the global supply chain. The labor market is getting stricter, with 1.3 million more openings expected in March 2022.
In the first quarter of 2022, the unemployment rate decreased to 3.7%, below its pre-pandemic lows, although the inactivity rate remained higher than pre-pandemic levels. Due to global supply constraints, high pent-up demand for products, and rising energy and goods costs, inflation has continued to climb. Since mid-2020, average weekly earnings have been rising gradually. But from January to March 2022, real wages were 1.2% lower than they had been the previous year. Following Russia’s invasion of Ukraine, rising oil costs have exacerbated inflation pressures and undermined confidence. Business confidence is still significantly higher than it was before the pandemic. But consumer confidence is still low owing to worries about the rising cost of living.
By driving up energy costs and disrupting supply chains, Russia’s invasion of Ukraine might have negative economic spillover consequences on the UK economy. Although there are few direct economic and commercial ties between the UK and Russia and Ukraine, rising energy costs throughout the world have a negative impact on family earnings, which are now falling in real terms. There are now special visa programs for Ukrainian refugees. These programs enable their close family members who are British citizens or who have already established residence in the United Kingdom to sponsor them in staying there.
Holidays for Queen Elizabeth’s death costly for UK economy
British GDP increased marginally in July, but this is only a temporary reprieve from the impending recession. This might be made worse by an additional holiday for the Queen Elizabeth II funeral, which is slated for September 19.
The service sector drove a 0.2% increase in GDP in July following a 0.6% fall in June, according to data released on Monday by the Office for National Statistics. Construction and manufacturing, on the other hand, saw a drop throughout that time. Any GDP growth is mostly attributable to “the weakness of GDP in June,” which was exacerbated by the impact of Queen Elizabeth II’s diamond jubilee festivities that resulted in two holiday, one more than normal, according to KPMG economist Yael Selfin to Agence France-Presse (AFP).
Impact of Queen Elizabeth’s death on GDP of UK economy
The queen’s funeral was a public holiday, giving the British economy two more days off in 2022 compared to a typical year. The extra day off for next week “has the potential to be more damaging for the economy than the extra day off for the Jubilee in June, as the hotel and tourism sector is unlikely to benefit… but many businesses will still close,” said Samuel Tombs, chief economist at Pantheon Macroeconomics, to AFP.
As a result of the holidays, which will see businesses close as the nation mourns the demise of its longest-reigning monarch, the prediction calls for September GDP to decline 0.2% less than it would have.
According to the Pantheon report, “it is extremely delicately balanced as to whether GDP shrinks again on a quarter-over-quarter basis… thereby resulting in a technical recession” following the announcement of an additional public holiday for the queen’s funeral this month. But, Mr. Tombs said, “many firms will be able to catch up, as most of them did in June.”
Impact of Queen Elizabeth’s death on inflation of UK economy
Nevertheless, the U.K. facing the worst cost of living crisis the country has experienced in years. Around 10% inflation is the highest it has been since the 1980s. The country is experiencing an energy crisis due in large part to declining Russian oil exports to Europe. In addition, the value of the British pound in relation to the dollar has been hovering close to a 37-year low. The UK’s economic growth is also a cause for concern. UK economy is currently the sixth-largest economy in the world after falling behind India. The Bank of England, the U.K.’s central bank, has issued a warning that the country runs the danger of experiencing a recession that may stretch long until 2024.
Changes in currency, passports and stamps
The British economy will undergo significant changes during the next few years. To begin with, King Charles’ image will need to be printed on new coins and notes. But the old banknotes won’t stop used immediately. It will take time for them to disappear from circulation (via Independent). Given that they now “request and demand in the Name of Her Majesty all those whom it may concern to enable the bearer to walk freely without let or hindrance”. British passports will also require some modification (via Independent). Additionally, stamps will require an update and replacement with fresh issues featuring King Charles’ head.
How the forecast for UK economy will be?
Output of the economy is anticipated to increase by 3.6% in 2022 before stalling in 2023 as a result of weak demand. As price increases reduce the household earnings and private consumption will decline. Savings among households will fall to levels below those before the crisis, and some may increase their debt loads to keep up with the increased cost of living.
Inflation forecast for UK economy
As a result of supply constraints, rising transportation costs, and energy prices, the price of tradeable products and services will continue to grow globally, reaching a peak inflation of just over 10% in the fourth quarter of 2022. Base effects will cause inflation to progressively decline through 2023. But the impact of the EU oil embargo on global energy costs will keep inflation high.
The future for UK inflation is somewhat unclear. According to PwC study of possible outcomes, headline inflation may reach a peak of 17% in the first half of 2023. However, if the government decides to freeze consumer energy prices, inflation may reach a peak of 10% to 13%.
The greatest rate of inflation since 1980 would be a peak inflation rate of 17%. Imaginative estimates for annual CPI inflation based on fluctuations in energy futures prices
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Over the projection period, there will be higher wage growth as a result of the labor market’s forecast tightening. But wage growth will still lag behind inflation. By the end of 2023, inflation will fall to 4.7% thanks to tighter monetary policy and reducing supply constraints. Although economists expect a lower level of unemployment , weakening demand will cause it to rise gradually to 4.5% until the end of 2023. Rising interest rates and persistent uncertainties will discourage business investment. Supply constraints will impede projected investment in 2022. But the investment in infrastructure and the environment will grow in 2023. According to projections, the general government deficit will steadily decrease to 5.3% of GDP in 2022 and 4.1% of GDP in 2023.
GDP forecast for UK economy
I will summarize the GDP projections of PwC as follows