If you think British taxpayers’ woes would have only domestic ramifications, think again. The turmoil is keeping a large number of British expatriates working across the Middle East on edge. Parents funding their children’s education in the UK are keeping a close eye. So are businesses with branches in Britain, the suppliers of goods to the country, and projects and communities worldwide depending on British donations. For now, those with family vacations to London in the pipeline could stay the course.
Sooner rather than later, global uncertainty and increased interest rates mean the risk of contagion remains and may even hit the purses of those with little to do with Britain. It started with former prime minister Liz Truss’s liaison with the economy, now infamously called “Trussonomics” in the form of a seemingly innocuous “mini-budget” that spooked markets worldwide. Truss’s chancellor of the exchequer, Kwasi Kwarteng, lost his job in all of 38 days. Kwarteng’s boss didn’t survive much longer.
Another round of leadership battles and Rishi Sunak’s elevation to the prime minister’s position notwithstanding, things continue to remain grim for the British economy and the Conservative party, which has been in power since 2010. A “long and painful recession” is underway, and any more misadventure of the Truss scale would cause more than just ripples.
Eager real estate brokers might urge Middle East investors to use dollar-pegged currencies to avail “a double whammy of advantages” to invest in UK properties, but there is a larger picture at play. It is also about the economy’s long-term health, human capital development, fostering innovation, and building an investor-friendly ecosystem. All that will be a big ask while Britain embarks on what is described as a “new era of austerity.”
It must, however, fill the black hole in its finances and rebuild its credibility. Pundits say the British economy has already entered a recession, which is expected to go on for two more years. That would be longer than what it went through during the financial crisis of 2008-09. With real household incomes expected to fall by 7 percent over two years, it also means a significant lifestyle adjustment for UK taxpayers.
The scenario leaves with the million-dollar question. What does all this mean for us here in the Middle East? Cascading effects associated with interconnected economies are always on the cards. It is difficult to escape the contagion from the world’s fourth-largest economy. Since Brexit, successive Conservative governments, under five prime ministers, have been trying to boost increased trade and inward investment from the Gulf Arab countries. Liz Truss, as foreign secretary, and her GCC counterparts committed in December 2021 to begin negotiations in 2022 for a UK-GCC Free Trade Agreement.
That goal now seems distant, considering the Sunak government has to get things back on track at home. Even those calling the shots admit that the recent events have dented Britain’s reputation as a robust and stable economy. While a country’s image may not be a tangible commodity, a prolonged crisis creates doubts for investors. Britain can ill-afford that amid already persistent questions related to Brexit and whether it lies at the core of the ongoing turmoil remain unanswered.
British society is also undergoing a profound socio-economic transition, and this crisis could make or mar its prospects. According to one estimate, the number of economically inactive people aged 50-64 has increased in Britain. Small and medium-sized UK businesses are struggling to meet the burdens of the new post-Brexit system. They are moving their production and jobs to the EU or reducing activity and headcount while seeking new growth options.
The Atlantic, in a telling commentary – How the UK became one of the poorest countries in Western Europe – sums up the British economy story in literally one sentence. “In the past 30 years, the British economy chose finance over industry, Britain’s government
chose austerity over investment, and British voters chose a closed and poorer economy over an open and richer one.” While that reads like an eloquent diagnosis, and there might be even more caustic prescriptions, the burning question is whether the sun will set on the British economy before the British empire.
No country in the Middle East would rejoice over the British travails. Their responses would vary based on their levels of exposure, tourist footfalls, investments, and trade balances. However, they could all be asking some basic questions. Shouldn’t Britain first set its house in order, find a way to deal with its neighbors in Europe, and then look across the world for economic partnerships? What if a sixth Conservative prime minister is on its way? What if the Tories lose power in the next elections? While those scenarios pan out, the trip-planning to London should feel happy about a smaller hole in the pocket. – Ehtesham Shahid is a senior editor and researcher based in the UAE.