With people panic-buying gasoline, protests against taxes on cheap hot lunches, and worse-than-expected economic data, the mood in the UK seems to be turning from the cautious optimism of early 2012.
The UK government, led by Prime Minister David Cameron, has faced a barrage of criticism over gasoline and a tax on Cornish pasties. Fears of strikes and the return of social class to the front of the news agenda have drawn comparison to the 1970s.
Cornish pasties, a meat and pastry snack popular in the UK and often regarded as a working man’s lunch or snack, will face extra tax under the country’s new budget. The budget also cut taxes on the country’s highest earners from 50 percent to 45 percent, leading to accusations that the government is out of touch with the average British consumer.
The victory of maverick politician George Galloway, of the obscure Respect Party, in a by-election for what was once a safe seat for Labour, the main opposition party, was also seen as a sign of discontent with the mainstream political parties.
Gas stations around the UK were forced to turn customers away last week after Cabinet Office minister Francis Maude urged people to stockpile petrol, ahead of a feared strike by fuel tanker drivers.
Unite, the union representing the drivers, who are aggrieved over their working conditions and safety fears, has said that a strike will not take place until after the long Easter weekend.
There are also growing concerns that the overall picture in the UK is worse than previously hoped. The country has one of the biggest deficits in Europe – 82 percent of gross domestic product in 2011, according to IMF estimates. The government still owns large stakes in Royal Bank of Scotland and Lloyds after the fallout from the credit crisis, and looks unlikely to offload them at a profit any time soon. UK public sector borrowing was almost double forecasts in February as income tax receipts fell.
“On the fiscal side, almost every country in the euro zone has less of a problem than the UK,” Holger Schmieding, chief economist at Berenberg Bank, told CNBC.
Analysts at Barclays cut their forecasts for GDP growth in the UK to just 0.7 percent last week, after weaker-than-expected data for the first three months of 2012.
The UK is distinguished from some of its euro zone neighbors by having a relatively flexible labor market and comparatively low business tax, as well as its own currency , which should help its recovery, according to Schmieding. And inflation has continued to fall in recent months, which may help restore some of consumers’ confidence.
A sustained rally in oil prices and disappointing global growth could be the most important factors in dragging down the UK’s economy this year, Howard Archer, chief UK and European economist at IHS Global Insight, told CNBC.com.
“These events could have a small effect on business or consumer confidence, but at the end of the day if the government doesn’t change its economic course, and as long as this doesn’t become a series of disasters, it doesn’t matter,” he said.