Everything Has Changed. We Are Now Living In A Wartime Economy And The Government Needs To Change Almost All Its Economic Policies To Suit That New Situation

25th February 2022

A very important article by Richard Murphy of Tax Research to make everyone think carefully about finances going forward.

Posted on February 25 2022

As the FT has noted this morning.:

UK consumer confidence plunged in February and many measures of spending remained below pre-pandemic levels as surging living costs hit morale even before Russia invaded Ukraine. The consumer confidence index, a closely watched indicator of how people view the state of their personal finances and wider economic prospects compiled by research company GfK, fell seven points to minus 26 in February. It was the lowest score since January 2021 and one of the worst since the start of the pandemic.

The trend is heavy, and marked. The report also reflects what is really happening. Spending on what are called 'delayable items', like clothing and homeware are down, with little sign of likely recovery, whilst spending on entertainment is also running much lower than last November. There is as yet no post-Omircon recovery. In other words, it is very likely that the mood has changed, significantly.

This is hardly surprising. Threatened and real increases in food prices, petrol and diesel costs, energy tariffs and taxation are all casting a very long shadow over consumer confidence for the very good reason that many household budgets are going to be stretched to their absolute limits. And that was before war in Ukraine.

What was already looking to be a fairly grim economic situation is now, in my opinion, looking very much like a profoundly recessionary environment. Petrol prices are now expected to rise to £1.60 per gallon. If yesterday's gas price increases are sustained the domestic energy price cap would have to increase to something like £3,000 a year this autumn, which will push many households into an impossible situation when trying to balance their budgets. And, given that both Russia and Ukraine remain major wheat exporters, the price of food is going to rise as well.

And then, just as if things were not bad enough, the Bank of England is still sending out the message that it intends to increase interest rates.

Read the full article HERE