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As Soaring Prices Roil Britain, Its Leader Vacations and a Likely Successor Sidesteps the Issue

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LONDON — The last time Britain suffered double-digit inflation, in 1982, Margaret Thatcher was prime minister, the nation was about to go to war with Argentina over the Falkland Islands, nurses and miners went on strike, and Prince William was born to Prince Charles and his wife, Princess Diana.

This week, Britain is again in upheaval, with an inflation rate of 10.1 percent in July, a looming recession and a Conservative Party within the throes of a rancorous campaign to decide on a latest leader. If, as expected, Liz Truss is elected next month, she would take power during a period of economic stress comparable to what Thatcher confronted.

And yet the multiple shocks Britain faces — from soaring energy prices due to war in Ukraine, supply-chain disruptions after the coronavirus pandemic, and the hollowing out of the British labor market by Brexit — seem strangely disconnected from the competition to interchange Prime Minister Boris Johnson.

The untethered nature of the campaign is all of the more striking because Britain is faring worse economically than its major European neighbors, not to say america. Stagflation, one other bleak relic of Thatcher’s early years, seems prone to haunt whoever succeeds Mr. Johnson.

Ms. Truss, the foreign secretary, has stuck to an agenda focused on cutting taxes, which could aggravate reasonably than help solve those problems. Her goal is to appeal to the affluent, older Conservative Party members who select the leader — a technique that has helped her amass a so-far-unassailable lead over her opponent, Rishi Sunak, the previous chancellor of the Exchequer. In polls of party members, Ms. Truss has a bonus over Mr. Sunak of between 22 and 38 percentage points.

“The entire campaign has been conducted on this bubble of unreality,” said Tim Bale, a professor of politics at Queen Mary, University of London. He blamed the issue partly on the news media, which he said had didn’t pin down the candidates on how they’d confront inflation.

“There’s also a level of fatalism in regards to the crisis,” Mr. Bale added. “It’s put right down to external events, and — by some — to the Bank of England’s tardy response.”

The blinkered nature of the controversy, analysts say, also reflects the peculiarities of the British political system. Only rank-and-file members of the Conservative Party can vote for the following leader, a constituency estimated at around 160,000 people.

Older, whiter, and wealthier than most Britons, these voters are far less vulnerable to the ravages of a cost-of-living crisis than the broader population. To this rarefied slice of the electorate, Ms. Truss’ promise of tax cuts is more alluring than stark warnings that Britain must batten down the hatches before an approaching storm.

Mr. Johnson, for his part, is on vacation in Greece, having skipped the prospect to carry a crisis meeting together with his would-be successors, as George W. Bush famously did in the course of the presidential campaign in 2008, when he summoned Barack Obama and John McCain to the White House to debate an emergency plan to confront the financial crisis.

“It’s pathetic that we now have a government during which the leader is on a paid holiday, while the candidates to succeed him are only talking about pure nonsense,” said Jonathan Portes, a professor of economics and public policy at Kings College London. “The one one who appears to be pondering seriously about that is Gordon Brown.”

Mr. Brown, a former Labour prime minister who led Britain’s response to the 2008 crisis, wrote recently that Mr. Johnson and the 2 candidates should agree on an emergency budget to cushion the blow of looming fuel price increases. Otherwise, he said, they’d risk consigning “tens of millions of vulnerable and blameless children and pensioners to a winter of dire poverty.”

The inflation data, Mr. Portes said, showed that Britain was affected by the “worst of each worlds.” It has been hit by the soaring fuel prices which have afflicted other European countries. The European Union said on Thursday that inflation within the 19 countries that use the euro rose to a record 8.9 percent in July. Nevertheless it was lower in France, where the federal government has capped fuel prices.

Britain also has the acute post-Covid labor market shortages which have plagued america, putting pressure on wages. In Britain’s case, those shortages have been aggravated by Brexit, which has reduced the influx of migrant employees from elsewhere in Europe.

Ms. Truss has pledged aid to individuals who can be hard hit by the following planned increase in household fuel bills, in October, though she has refused to be drawn out on what such a package would appear to be. She has also raised the prospect of reviewing the anti-inflation mandate of the Bank of England, Britain’s central bank. It has come under fire in recent days for failing to act quickly enough to stem spiraling prices.

The bank recently hiked rates of interest sharply, and it is anticipated to double them again in the following six months. Yet the bank predicts that inflation will keep rising until it peaks at 13.2 percent in October, while it forecasts that a tighter money supply will plunge the economy right into a recession that it says will last through 2023.

Mr. Sunak also holds out the promise of lower taxes, though he argues that the federal government must tame inflation before it passes tax cuts. He has accused his opponent of fairy-tale economics. Ms. Truss counters that swift tax cuts will stimulate business activity and offer the surest path out of the economic wilderness.

Economists, nevertheless, warn that cutting taxes would further strain Britain’s public services, most notably the National Health Service, which is already frayed after the pandemic.

“It is difficult to square the guarantees that each Ms. Truss and Mr. Sunak are making to chop taxes over the medium term with the absence of any specific measures to chop public spending and a presumed desire to administer the nation’s funds responsibly,” said Carl Emmerson, the deputy director of the Institute for Fiscal Studies, a research organization that just published a report on the federal government’s deteriorating funds.

On Wednesday, as the brand new inflation numbers were announced, Ms. Truss was in Belfast, vowing to pass laws on trade in Northern Ireland that’s prone to ignite a latest round of post-Brexit tensions with the European Union.

Aside from its effect on Northern Ireland, the role of Brexit in Britain’s woes can be largely absent from the campaign. Each candidates are appealing to the Brexiteer wing of the Conservative Party, especially Ms. Truss, who opposed the 2016 referendum to depart the European Union, but now displays the fervor of a convert.

In reality, there may be energetic debate amongst economists about how much Britain’s inflation will be blamed on Brexit. Mr. Portes said it was not a key driver but has “increased pressure on the margins” by worsening labor shortages, depressing the worth of the pound, and raising the prices of imports, owing to customs paperwork.

Adam Posen, an American economist who once served as an external member of the Bank of England’s Monetary Policy Committee, estimated in May that 80 percent of Britain’s inflation could possibly be blamed on Brexit, mainly due to lack of European migrant labor. This week, he stood by his aggressive claim.

“Events have sadly played out about how I and others forecast,” Mr. Posen said.

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