On December 14, we hosted a great discussion on some of the major issues that will be shaping the news in 2023, including the war in Ukraine, the cost-of-living crisis in the UK, and the general political landscape as we look toward the 2024 election. Our fantastic panel talked us through how these stories could develop next year, what to look out for, and even where there might be some silver linings to an otherwise pretty grim forecast. Scroll down to watch the discussion in full.
A quick note before we get to the writeup: if you’re planning your coverage for next year, we’ve also launched our 2023 news calendars! You can download a UK or US version, each featuring over 500 events to help you plan for the biggest diary stories of the year.
- Sam Freedman, columnist and Senior Fellow, Institute for Government
- Hannah Slaughter, Senior Economist, The Resolution Foundation
- Tom Standage, Deputy Editor, The Economist, and Editor, The World Ahead 2023
- Nicole Wilkins, Publisher, Foresight News (chair)
Key dates: World Economic Forum (Davos) (January 16-20); G7 cap/EU import ban on refined Russian oil exports (February 5); NATO defence ministers meeting (February 15-16); Munich Security Conference (February 17-19); anniversary of Russia’s invasion of Ukraine (February 24); Black Sea Grain Initiative agreement expires (March 19); Russia Victory Day parade (May 9); Council of Europe Summit (May 16-17); St Petersburg International Economic Forum (June 14-17); Ukraine Recovery Conference (June 21-22); NATO Summit (July 11-12); Parliamentary elections due in Ukraine (October 29).
First up, we heard from The Economist‘s Tom Standage on the conflict in Ukraine. Tom emphasised that the world is facing a series of interconnected problems, which previously had been driven by the pandemic but were now driven by the war. The conflict has driven up food and energy prices, worsening the pre-pandemic inflation problem, which has led to a dramatic increase in interest rates which in turn will lead to recessions next year due to the increased cost of servicing debt worldwide. Tom predicted that recessions would be mild in the US, deep in Europe, and long in Britain, exacerbated by the high interest rates and strong dollar in the US, which makes everything more expensive for countries that have debt or trade in USD.
In terms of the war itself, Tom said a decisive end is unlikely in the next 12 months, and a more likely scenario is that Ukraine continues to make some advances while Vladimir Putin does his best to ‘not lose’, stringing the conflict out in hopes that some external factor swings things in his favour. Potential factors include bringing Ukraine to the negotiating table through continued attacks on their infrastructure, or a weakening in European support through one or two difficult winters. Tom highlighted Italy as a country to potentially watch, as new Prime Minister Giorgia Meloni (who has been supportive of Ukraine) comes under pressure from her coalition mates and the country struggles to continue to support its population through difficult times in a way that countries like Germany can afford to.
We are expected to continue seeing high and volatile energy prices through to next winter – Tom pointed out that because companies buy energy on long-term contracts, in many cases we haven’t actually seen the higher prices kick in yet so there is little prospect of seeing prices come down any time soon. The biggest external factor, though, would be the return of Donald Trump, who has history with Ukrainian President Volodymyr Zelensky and who could remove Ukraine’s biggest military and financial supporter if he regained the presidency in 2024.
We also discussed supply chains and the interconnected role of China. We expect to see continued disruption to supply chains in the oil and gas industries where Russia is involved, and Tom pointed particularly to a potential crunch in diesel next year because refining capacity is now all in the wrong places as the flow of oil has changed as countries have changed their suppliers. Europe is now much more reliant on LNG from the Middle East and America, which has led to less available for countries like India and Pakistan, and energy shortages in some exporter countries like Egypt, which prefers the money from exports rather than using capacity domestically.
But in terms of some of the consumer supply chain issues we saw during the pandemic, those are more related to China, which many companies are heavily reliant on both for manufacturing and as an end market. As China begins relaxing its very strict COVID-19 rules, Tom said it’s likely we’ll see an exit wave of cases, which can disrupt the Chinese economy, overload its healthcare system, and cause disruptions to manufacturing and therefore more supply chain issues. Even in an unlikely best-case scenario where China’s exit from the pandemic is relatively painless, we would see an increased demand for energy, which would put more pressure on energy prices. Both of these scenarios will lead to further inflationary pressures in the global market.
COST OF LIVING
Key dates: Energy windfall tax increases (January 1); Resolution Foundation Living Standards Outlook 2023 (January 9); junior doctors strike ballot opens (January 9); teachers strike ballots close (January 9, 11, 13); inflation stats (January 18, February 15, March 22, April 19); Bank of England interest rate decision (February 2); Q4 GDP (February 10); rail fares increase (March 1); Budget (March 15); energy price cap changes take effect (April 1); corporation tax (April 1), income tax (April 6) and state pension (April 10) changes take effect; Q1 GDP (May 11); Q2 GDP (August 11); July inflation figures – rail fare increase (August 16); September inflation figures – pensions/benefits uprating (October 18); Q3 GDP (November 10).
Hannah Slaughter from the Resolution Foundation picked up where Tom left off on energy prices and inflation, as data released on the morning of our discussion showed that in the year to November inflation was at 10.7% – this represented a fall from last month’s high of 11.1%, but means that prices are still rising. Hannah pointed out that poorest households are being hit the hardest by the cost-of-living crisis, and that it’s an unequal crisis: the effective inflation rate for the poorest tenth of households is 12.1%, compared to 9.4% for the richest tenth, and people on the lowest incomes have less space to cut back because so much of their income is already going on essentials.
Looking ahead to 2023, Hannah said there’s a lot of uncertainty. We may have seen the peak of inflation last month, and we are seeing some signs of disinflationary pressures globally, including a reduction in demand for gas and some normalisation in supply chain frictions, but Hannah said we are likely to see a continuation of what’s been happening the last few months, with price rises massively outpacing rises in wages. Unfortunately, we’ll also see the knock on effects for the wider economy as people cut back spending and businesses start cutting back on jobs – the Office for Budget Responsibility has forecasted that, for the first time in over 40 years, the economy will be no bigger at the end of the parliament than it was at the beginning.
Hannah also talked about the labour market more widely, with strikes looming large in the public consciousness at the moment. These look likely to continue, particularly in the public sector where we’ve seen the biggest gap with private sector pay growth since the ONS data series began in the early 2000s. The two sectors are also divided in terms of vacancies, where the rate is still rising in the public sector but beginning to slow in the private sector where demand is weakening ahead of a difficult year. Unemployment is expected to rise, and we may also see people re-entering the labour market who had left it during the pandemic as the cost of living continues to increase.
In terms of fiscal policy and the government’s budget, the Resolution Foundation’s view on the Autumn Statement was that the tax rises were progressive but that middle income households would be negatively affected by tax threshold freezes over the next couple of years. The short to medium term support that the government was provided for energy costs has been welcome, as has the commitment to uprate benefits by inflation rather than wage growth, but household living standards will be affected if support isn’t extended beyond this winter, and we could see a big cliff edge as energy prices continue to rise because of the way families spread out their energy payments over the year.
Hannah also pointed to a potential cliff edge for people who are just above the threshold for benefits, who will continue to see rises in the cost of goods but don’t benefit from existing government support. She noted that paying for support programmes doesn’t have to be a ‘one for one’ scenario, as supporting those on lower incomes can have a positive impact on the wider economy, because those households are more likely to actually spend any money they receive. Looking a bit longer-term, Hannah said there were likely to be some cutbacks to wider public sector spending that would put pressure on public services, though said it would be unwise to go too far on that front and that money should be raised in progressive ways through wealth taxes.
Key dates: 100 days since Rishi Sunak took office (February 2); 25th anniversary of the Good Friday Agreement (April 10); latest date for Northern Ireland elections (April 13); local elections (May 4); G7 Summit (May 19-21); Boundary Commission final report (July 1); G20 Summit (September 9-10); Conservative Party Conference (October 1-4); Labour Party Conference (October 8-11); Lord Mayor’s Banquet (November 13); target date to clear UK asylum backlog (December 31).
Talk of political decisions led into our conversation with columnist Sam Freedman, who began by explaining that the reason the past few years have been so chaotic for the Conservative Party stems from the 2019 manifesto, which saw the party elected by a voter coalition focused on issues that the government can’t actually do much about because the potential solutions are politically unpalatable to another section of their electorate – Brexit, immigration and housebuilding, for example. Rishi Sunak is therefore extremely constrained going into next year and unable to solve any of these problems, and Sam said it looks like we’re on a fairly inevitable glide path into a 2024 election (likely in October) which Labour is widely expected to win.
While Sunak is trapped by his own party and essentially working not to lose too badly in 2024, Labour is in a stronger position than at any point since Tony Blair was in charge. Sam said you can feel a mood shift in Westminster, where people and donors are looking at Labour as the next government and the party to influence. While Labour have a clear political strategy that involves trying to reach the socially conservative, economically liberal, older Brexit voters that they’ve lost since 2016, their policy areas still need to be developed, and they’ll come under increased pressure to set them out in more detail in the run up to 2024.
Sam pointed to tuition fees as an example of an area where Starmer will run into difficulty because of a gap between what he’s pledged in the past and what he’s likely to say in a more pragmatic, pre-election context. While polling may close up and even include some moments where the Tories have a small lead, what we are most likely looking at is a Labour government, and the question will be whether they can reassure people and create an impressive enough sense of policy and leadership that they can win a majority. Brexit is another area that may cause problems for Labour. Public opinion has been turning against Brexit, with only a third of people now saying it was right for the UK to leave the EU; Sam doesn’t expect it to make a lot of noise until after the 2024 election, but said it has the potential to be a defining issue for a Labour government if internal opposition to Starmer starts forming around a closer relationship withs the EU.
One thing Sam said to look out for in the new year is a prospect of a reshuffle – because of the way Sunak came to power, he inherited his chancellor, foreign secretary and home secretary, and whether he opts to replace them will be a sign of how politically confident he is feeling. Oliver Dowden and Steve Barclay were tipped as likely chancellors if he does move Jeremy Hunt, while replacing Suella Braverman as home secretary is seen as a must if Sunak wants to make any meaningful changes on immigration policy.
For more in-depth analysis on all of these issues, listen to the full recording below. Thanks again to our panellists for sharing their insight!
Watch the full discussion:
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