Yesterday’s updated forecasts from the Bank of England have sent shivers down the spines of the ruling class and workers alike.
The mood of alarm was quickly reflected on the markets, with pound sterling falling against the dollar and the euro, and also on the frontpages of today’s newspapers.
“Britain slides into crisis,” warned the main headline of the Times, a serious mouthpiece of the capitalist class. This was accompanied by a column from the paper’s economic editor, ominously entitled: “Get used to the grim new reality.”
Elsewhere, the Daily Express stated that it is “time to batten down the hatches”. Both the Metro and the i, meanwhile, highlighted “the big squeeze” coming for UK households this winter, with interest rates, energy costs, and inflation all rising.
Doom and gloom
Across the board, the Bank of England (BoE) is predicting doom and gloom. With pressures such as war-related supply shocks and shortages showing no signs of letting up, for example, headline inflation is now estimated to reach 13% later this year. And it is likely to remain at “very elevated levels” well beyond 2023, the Bank suggests.
Already, inflation stands at 9.4%, according to official figures. And surging energy bills will give this a push in October, when the energy price cap is lifted, leading annual heating and electricity costs to climb to around £3,500.
Similarly, earlier this week, one thinktank commented that inflation could reach “astronomical” levels, with the Retail Price Index – used to set rail fares, student loan repayments, and many rents – hitting 17.7%.
At the same time, skyrocketing prices are set to be accompanied by a prolonged recession, with the BoE forecasting that the UK economy will contract for five continuous quarters. Growth will not return, in other words, until mid-2024.
The perspective for British capitalism, therefore, is one of ‘stagflation’: continued rampant inflation, alongside economic slump. This comes on top of recently downgraded estimates for global growth from the IMF. And with all this will come even-sharper class struggles.
Prices, profits, and panic
For the working class, the result will be the largest fall in living standards since records began in 1960: a peak-to-trough decline of 5% in real-terms household income. And this is already accounting for the package of support that the government announced earlier this year in response to soaring energy costs.
For the ruling class, meanwhile, panic is setting in at the realisation that they have completely lost control of the situation.
In order to subdue inflation, BoE chiefs agreed yesterday to raise interest rates by 0.5% to 1.75% – the biggest single leap in 27 years. And further hikes are expected to come, as the central bank tightens monetary policy in order to ‘cool’ the economy.
But this will do little to help put out the fires of inflation, which – by BoE governor Andrew Bailey’s own admission – is primarily being driven at this point by the impact of the Ukraine war on the supply of gas and oil, and thus on energy and fuel prices.
Higher interest rates do nothing to solve this. Instead, they will simply increase the burden of debt for families and companies, and for the government also, leading to bankruptcies, misery, and further austerity.
Meanwhile, the big energy monopolies will continue to reap record profits, with fat-cat bosses lining their pockets at our expense.
Engineering a downturn
“If we don’t act now…the consequences later will be worse,” asserted Bailey, defending the Bank’s latest decision to bump interest rates.
The aim, the BoE chief stated, is to combat ‘inflation expectations’ – that is, to consciously provoke a recession, in order to bring unemployment up and wages down.
“The immediate inflation outlook is now so dire that the [Bank of England] Monetary Policy Committee feels it has no option but to engineer a more severe economic downturn,” said Ross Walker, an economist at NatWest – a decision which he called a “deeply sobering shift in policy”.
Included in the Bank’s predictions, therefore, is an expectation that unemployment will rise from the middle of next year, exceeding 6% by the middle of 2025.
But it is not workers – and a so-called ‘wage-price spiral’ – who are responsible for inflation. Rather, it is the capitalists and their chaotic, parasitic system who are to blame; and who are the ones to profit from the scarcity and shortages wracking the world economy.
Far from resolving the crisis, then, by going down this path, the ruling class are simply seeking to exchange inflation for austerity. But for workers, this amounts to the same thing: a choice of death by hanging, or death by a thousand cuts.
And with a “grim new reality” of stagflation on the cards in the period ahead, it will in fact be a case of both, as ordinary people’s living standards are squeezed both by rising prices, and by attacks on jobs, pay, conditions, and public services.
Already, Boris Johnson’s likely successor, the Thatcher-idolising Liz Truss, is promising deep cuts, as she seeks to appease the rabid ranks of the Tory Party. And this bitter pill is to be served up with a dish of anti-union laws, aimed at restricting the right to strike.
This dire situation – predicted not just by the Marxists, but by the strategists of capital themselves – must be a wake up call for the labour movement.
We have entered a new chapter in the crisis of British capitalism. Not reforms, but counter-reforms and cuts, austerity and attacks, are on the order of the day.
The trade unions must therefore mobilise workers not only with demands for a proper pay rise, but around a bold socialist programme – of nationalisation, planning, and workers’ control – that can tackle the problem at its root: the anarchic, crisis-ridden capitalism system.