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March 2, 2022

Macro view: UK to experience worst living standards fall since 1956

Sunak must offer more support to respond to the collateral damage of sanctions and insulate UK households from a further rise in their energy bills to prevent the worst hit to living standards for more than half a century, say economists.

Richard Murphy

Richard Murphy, an economic justice campaigner and professor of accounting practice at the Sheffield University, shared an analysis suggesting that inflation and higher energy bills could lead to the sharpest fall in UK living standards since 1956. Therefore, the awareness that economically everything has changed is growing, Murphy tweeted. Economists believe these are challenging times, when Covid recovery having barely begun when Russia attacked Ukraine.

Therefore, the international goal of building back better from the Covid-19 pandemic has been replaced by an urgent need to prevent the escalation of tensions between Russia and Ukraine. Experts explain that Rishi Sunak, the Chancellor of the Exchequer must offer more support to counteract collateral damage of sanctions imposed on Russia. As a result, European leaders are looking at strategies to cut Europe’s reliance on Russian energy.

However, while sanctions may take years to pan out, experts state that the shock of war will drive up energy prices across the continent, adding to what was already the worst squeeze on living standards in decades. In Britain, inflation is likely to lead to the sharpest annual fall in living standards since the year of the Suez crisis, as the economic fallout from Covid holds back recovery from the worst recession in a century.

Economists further explain that Britain’s cost of living crisis is not only inflationary today, but stems from weaker wage growth rates, exacerbated by harsh benefit cuts hitting the poorest people during the pandemic.

Alex Tabarrok

Alex Tabarrok, Bartley J. Madden Chair in economics at the Mercatus Centre and professor of economics at the George Mason University, shared an article on Covid-19 masks becoming optional for all K-12 students in Virginia public schools. Tabarrok contemplates through the article about whether mathematics should be used to make decisions about children’s health and mask mandates.

After a year and half of home-schooling during the pandemic, her daughter is finally returning to join her friends in school, stated Bryan Caplan, a professor of economics at the George Mason University. Explaining the odds of not wearing a mask likely to lead to a child’s death due to Covid, Caplan explains that for vaccinated children, the odds of death has fallen to one in 200,000 because of the efficacy of the coronavirus vaccines.

She further adds that evidence suggests a 10% risk reduction from masks, which actually translates into one in 2,000,000 chances that regular mask-wearing will save a vaccinated child’s life. She thereby believes that schools have been hysterically overreacting from the very beginning of the pandemic. Additionally, the original Covid strain was four times deadlier, and vaccines are about 80% effective today. Therefore, the early risk was 20 times higher than today.

However, for kids, the benefit of wearing masks was similar to taking 25% off their risk of dying in a car accident. The health gain of strict isolation or quarantine was probably several times bigger, but strict isolation is not conducive to their health, she opines.

Samuel Tombs

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, tweeted on the three-month-on-three-month annualised growth rate of the broad money supply having slowed to a 31-month low of 3.6% in January 2022. He further added that households also remained unwilling to spend the cash they hoarded during the pandemic. Therefore, the chances of a high inflation, high growth scenario this year seemed slim.

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