Daily Management Review

According To Analysts, Britain Is Evolving Into A 'Emerging Market Country'


According To Analysts, Britain Is Evolving Into A 'Emerging Market Country'
According to Saxo Bank, the United Kingdom is a "emerging market country" due to political insecurity, trade interruptions, an energy crisis, and surging inflation.
The Bank of England warned last week that the United Kingdom's economy will enter its longest recession since the Great Financial Crisis in the fourth quarter, with GDP falling 2.1 per cent. Meanwhile, inflation is expected to exceed 13% in October.
Importantly, the central bank does not expect a rapid recovery from the crisis, with GDP staying 1.75 per cent below current levels in mid-2025.
In a research report issued Monday, Saxo Bank Head of Macro Analysis Christopher Dembik stated that the United Kingdom is "becoming more and more like an emerging market country."
Following Boris Johnson's departure, a new prime minister will be announced on September 5, with Conservative candidates Liz Truss and Rishi Sunak fighting for the keys to 10 Downing Street as the country faces a historic cost of living crisis and the sharpest decrease in living standards on record.
The energy price cap in the United Kingdom is projected to climb by another 70% in October, putting annual bills past £3,400 ($4,118) and pushing millions of homes into poverty, with another increase predicted early next year.
The country has also seen commercial interruptions as a result of Brexit and Covid-related bottlenecks.
According to Dembik, the only factor missing from a country's classification as an emerging market is a currency crisis, with the British pound standing fast amid a slew of macroeconomic challenges.
“It only dropped 0.70% against the euro and 1.50% against the U.S. dollar over the past week. Our bet: after surviving Brexit uncertainty, we don’t see what could push the sterling pound into a free fall.”
However, he believes that all leading indicators point to more suffering for the British economy in the future. For example, new car registrations declined 14 per cent points from 1.835 million in July 2021 to 1.528 million last month, from 1.835 million in July 2021 to 1.528 million last month.
“This is the lowest level since the end of the 1970s. The recession will be long and deep. There won’t be an easy escape. This is most worrying, in our view. The Bank of England assesses the slump will last with GDP still 1.75% below today’s levels in mid-2025,” Dembik said.
 “What Brexit has not done by itself, Brexit coupled with Covid and high inflation have succeeded in doing. The U.K. economy is crushed.”
According to the Danish investment bank, the Bank of England's projected interest rate hike in September — its seventh in a row — could be the final one.
“Outside of the jobs markets, there are signs that some of the key inflation drivers may be starting to ease,” Dembik said.
“In addition, the prospect of a long recession (five negative quarters of GDP starting in Q4 2022 all the way through to Q4 2023) will certainly push the Bank of England into a wait-and-see position.”
However, the bank cautioned that the current crisis had long-term consequences.a
“Imagine the graduate entering the workforce in 2009/10, who will have been told this was a once-in-a-lifetime crash. They are now in their early 30s and having yet another once-in-a-lifetime economic crisis,” Dembik said.
“They faced an economy of suppressed wages, no housing prospects, two years of socializing lost to lockdown, obscene energy bills and rent and now a lengthy recession. This will lead to more poverty and despair.”
The Bank of England forecasts that real household post-tax disposable income will fall 3.7 per cent between 2022 and 2023, with low-income households bearing the brunt of the impact, and Dembik cited the IMF's recent findings that the United Kingdom's poorest households are among the hardest hit in Europe by the cost of living increase.