The cost of energy prices and business rates may rise in 2023 if the government continues to try to control the cost of living crisis, says a financial expert at leading investment platform Saxo.
Steen Jakobsen, the company’s Chief Investment Officer, predicts our standard of living will decrease as Rishi Sunak and other global leaders waste time and effort on trying to fight inflation, which will inevitably rise faster.
The theory comes as part of the investment specialist’s annual Outrageous Predictions, a range of theories created by experts to discuss how major events in 2023 would send shockwaves through the financial markets.
Jakobsen reflects on the failure of the government to fix rising costs in 2022 and suggests rationing could be an option to help fix the “underlying issues.”
His prediction comes after UK inflation hit 11.1%, a 41-year high, earlier this year and energy prices soared as a result of increased demand for oil and gas in light of Russia’s invasion of Ukraine.
Steen Jakobsen, Chief Investment Officer at Saxo said,“Inflation will remain a challenge to control as long as globalisation continues to run in reverse and long-term energy needs remain unaddressed.
“Nearly all wars have brought price controls and rationing, seemingly as inevitable as battle casualties. The list of precedents stretches at least as far back as the Roman emperor Diocletian trying to set maximum prices for all commodities in the late third century AD.
“Over the last century-plus, we saw comprehensive price controls and rationing in the two world wars. And even without the context of war, price and even wage controls were implemented during the peak statist years under UK Prime Minister Wilson and even US President Nixon.
“2022 has also seen early and haphazard initiatives to manage inflation. Taxes on windfall profits for energy companies are all the rage while governments are failing to use the classic tool of rationing supplies. Instead, they are actively subsidising excess demand by capping heating and electricity prices for consumers.
“In France, this simply means that utilities go bankrupt and must be nationalised. The bill is passed to the government and then to the currency via inflation. Then we have the likely doomed effort by western officials to cap Russian energy prices from December 5. The intent is to starve Russia of revenue and hopefully cheapen crude oil export prices everywhere, but it will likely do neither.
“In a war economy, the government’s hand will expand mercilessly as long as price pressures threaten stability. The thinking among policymakers is that rising prices somehow suggest market failure and that more intervention is needed to prevent inflation from destabilising the economy and even society. In 2023, expect broadening price and even wage controls, maybe even something like a new National Board for Prices and Incomes being established in the UK and the US.
“But the outcome will be the same as it is for nearly every government policy: the law of unintended consequences. Controlling prices without solving the underlying issue will not only generate more inflation but also risk tearing at the social fabric through declining standards of living due to disincentives to produce, and misallocation of resources and investment.
“Only market-driven prices can deliver improved productivity and efficiency through investment. Looks like we’ll have to learn the lesson all over again in 2023 and beyond.”
