The Winter of Discontent was a phrase first used by some British newspapers and politicians to describe the winter of 1978-79 in Britain, when there were many strikes and economic problems. It was used to suggest that people were not happy with the way the Labour government was running the country. The same phrase is now used to refer to any difficult political situation that occurs during the months of winter.

It is already being feared that the omicron variant of the virus, increasing inflation and energy and supply chain issues may ignite another crisis this winter.

What are the main threats this winter?

The first is the pandemic itself. With the Omicron variant spreading rapidly across the country, new heavier restrictions are rumoured to be put in place around Boxing Day. Experts are warning that there are likely already hundreds of thousands of daily infections within days. This will probably result in more economic disruption.

Other economic problems have also emerged during the recovery. One of these is the rise in commodity prices, which has driven up the cost of living globally. Due to the rising prices for gas and electricity, many businesses have been affected, causing some to temporarily close. Several consumer energy companies are struggling and going bust, which could affect the whole industry. 

Aside from the lack of fuel, supply chain issues are also affecting hospitality and retail and Brexit seems to be one of the roots of this problem. Most industries are having staff shortages. Around a fifth of the UK’s driver shortage has been caused by EU drivers no longer having work visas.

On the back of the furlough scheme and working from home, many British workers are not willing to work in low-paid jobs with long irregular hours. Incentives, such as higher wages and bonuses, need to be introduced or employers like pubs and restaurants may struggle to stay afloat. However, the rise in cases caused by the Delta variant, a variant of coronavirus which surfaced in the Uk in May, only caused a very minimal rise in unemployment and I think we can expect the same from the Omicron variant. 

Graph 1 – Unemployment rate (aged 16 and over)(1971 to 2021)

We cannot also ignore the effects of climate change on food shortages. Extreme weather events have reduced food supplies and sharply increased food prices. From droughts in Argentina to heavy rain and floods in China midway through this year, supply chain issues are becoming much more frequent.

How do all these of these challenges affect inflation?

The price and wage increases are generating higher inflation data however, we do not yet know whether the increase in inflation is temporary or permanent. Inflation has increased over the past year because of lockdowns and government schemes.

One example is petrol prices. Demand for petrol was low during the pandemic as people were forced to work from home, lowering the price of petrol to around 113p per gallon in October 2020. After lockdown was lifted and travel returned to its pre-pandemic levels, increased demand pushed prices to around 138p per gallon a year later. 

Also, the contribution from second hand car prices has also changed significantly during the pandemic. Used car prices increased by 4.6% in the month to October 2021. These increases were caused by an increase in demand for second hand cars as people sought alternatives to public transport. Global semiconductor shortages drove up production costs and a fall in new car registrations last year have all contributed to this.

Graph 2 – Consumer price inflation (Nov 2019 to Nov 2021):

The Consumer Prices Index (CPI) rose by 5.1% in the 12 months to November 2021, up from 4.2% to October. This is the highest CPI 12-month inflation rate since September 2011, when it stood at 5.2%.

Besides the pandemic, Brexit has and is still certainly going to cause problems for firms and consumers alike. It has changed trade with the UK’s neighbouring countries making it more difficult and expensive. This is contributing to shortages of products, pushing prices up. Regulations put in place have also made it harder for EU nationals to work in the UK pushing wages higher and making production more expensive, causing more inflation.

Furthermore, unpredictable weather also has a hand in increasing inflation. Extreme weather events have decreased output and increased global commodity prices. As a result of this inflation will rise but without immediate action, this contributing factor will become more common as the global climate changes.

How does this compare to the 1970s?

During the 1970s, a series of economic problems caused major issues for the Wilson/Callaghan government. The trade unions were much closer to the government. At the time inflation was tenfold and worker’s wages were increasing at a disproportionate rate to the increasing inflation.

Callaghan was seen as unable to control trade unions, who had been striking following attempts to impose a 5% limit on pay increases in early 1979, and his government was seen to be unable to address the social breakdown across the UK. This paved the way for Margaret Thatcher’s Conservatives to be elected, winning a small majority of 43 which increased in the 1983 and 1987 elections.

Today, with more modest inflation and weaker unions, conditions are better than what they were in 1979 however – the social and economic disturbance brought about by the pandemic and Brexit is significant. With rising world energy costs adding tension when public finances are bare, poverty and inequality may well increase this winter. A winter of discontent may just be around the corner.

Footnotes

1. https://www.ons.gov.uk/file?uri=%2feconomy%2finflationandpriceindices%2fdatasets%2fconsumerpriceinflation%2fcurrent/consumerpriceinflationdetailedreferencetables.xls
2. https://theconversation.com/three-things-that-could-help-save-christmas-2021-from-shortages-167072
3. https://www.city.ac.uk/news-and-events/news/2021/09/new-winter-of-discontent-could-be-hard-to-avoid-economic-expert-q-and-a-on-the-crises-facing-britain