Source: www.nytimes.com : 2022-07-05 20:19:37 : Eshe Nelson
London’s financial markets had closed by the time the resignations of Rishi Sunak and Sajid Javid were announced on Tuesday evening, so most market reaction, if any, will come on Wednesday.
There was no notable movement in the British pound, but the currency was already 1.5 percent lower for the day against the U.S. dollar by Tuesday evening. The dollar has strengthened as investors seek safety amid growing risks of recession around the world.
Mr. Sunak cited the economy in explaining why he was resigning as chancellor of the Exchequer, Britain’s top finance official. Next week he was scheduled to give a speech with Prime Minister Boris Johnson on their plan to support the economy, and it seems the differences in their proposals were too big to be breached.
“It has become clear to me that our approaches are fundamentally too different,” Mr. Sunak wrote in his resignation letter to the prime minister.
Britain’s economic outlook is grim. Inflation is at its highest level in four decades and is not expected to peak until it climbs above 10 percent in the fall. Households are facing their worst squeeze on incomes in generations, and the pain is already acute as people try to spend less, while credit card and other personal debt is rising.
The Bank of England has raised interest rates to their highest level since 2009 and has said that more increases will come in the fight against rising inflation, even as the outlook of an economic slowdown becomes more challenging. Businesses are wading through a slew of warnings as many of them struggle to hire workers since Brexit and the pandemic have diminished the pool of available workers.
Mr. Sunak announced billions of pounds in additional spending in May to help people with the rising cost of living, partly funded by a windfall tax on oil and gas companies. But he has expressed reservations about the government’s trying to use spending to lessen economic hardship and favors corporate investment and lower taxes to increase productivity.
Late last year, Boris Johnson declared that he could build a high-growth, high-wage economy, and now he is warning against big pay rises that could worsen inflation.
As pay falls far behind inflation, workers have carried out strikes that set Britain up for a summer of labor unrest. Recently, train workers and criminal defense lawyers walked off the job, and health care workers, schoolteachers and postal employees are among those threatening to strike in the coming months.
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