UK’s new Finance Minister Zahawi inherits a recession economy, soaring inflation According to Reuters

By William Schomberg

LONDON (Reuters) – Britain’s new finance minister, Nadhim Zahawi, takes the helm of an economy grappling with the strain of near double-digit inflation and the slowdown looking more severe than most. other major countries in the world.

Like his predecessor Rishi Sunak, Zahawi will face pressure for more spending and tax cuts from lawmakers in Prime Minister Boris Johnson’s Conservative Party who have been hit by a drop in income popularity of this party.

The former education minister – who co-founded polling firm YouGov before entering parliament – will also play a key role in resolving Brexit’s unfinished business with the UK and the European Union. .

Differences to the trade rules for Northern Ireland could lead to increased barriers to British exports to the bloc.

The International Monetary Fund forecast in April that Britain in 2023 faces slower economic growth and more persistent inflation than any other major economy in the world.

Since then, the value of the pound has fallen further and it hit a two-year low against the US dollar on Tuesday, which should add to inflationary pressures in the UK.

Inflation hit a 40-year high of 9.1% in May and the Bank of England forecasts a peak of 11% in October.

With the Bank of England raising interest rates and confidence in households and some businesses slumping, UK gross domestic product fell in April and is expected to fall for the whole of the second quarter. .

Most economists think in the short term it will avoid the technical definition of a recession – two consecutive quarters – thanks in part to the latest emergency cost-of-living measures announced by Sunak. father in May.

But with growth likely to slow and level off next year, there have been calls by Conservative lawmakers for a value-added tax cut in the fall – a move likely cost tens of billions of pounds.

That would send Britain’s public debt to over £2 trillion ($2.39 trillion) during the coronavirus pandemic and now account for almost 96% of GDP.

Johnson and Sunak are often said to be at odds over how much more the government should borrow.

In announcing his resignation on Tuesday, Sunak – who has often stressed the importance of fixing public finances – said for him his approach to running the economy “is fundamentally too different.” separate” from Johnson.

Sarah Hewin, senior economist at Standard Chartered (OTC:), said shortly before Zahawi’s appointment that it was difficult to see how Johnson could continue as prime minister.

“If he continues, markets can expect more generous tax breaks and spending now that Rishi Sunak has gone, which will increase pressure on the BoE to do more, potentially provides some foundation for the pound,” she said.

(1 dollar = 0.8363 pounds)