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People can tell that the UK economy is struggling because their wages aren’t going up as fast as prices.
The International Monetary Fund (IMF) thinks that the UK economy will shrink this year, while all other major economies will grow.
The Bank of England also thinks that there will be a recession in the UK in 2023, but it will be shorter and less bad than was thought.
Given the pandemic, the war in Ukraine, and the rising costs of energy and food, it may not come as a surprise that the future looks bad.
But why does it look like rich countries like the US, Germany, and France are doing better than the UK?
Is the UK economy falling behind?
Predictions can never be 100% right. Because so many things, from geopolitics to the weather, affect economic growth, it’s hard to make accurate predictions. But they can show you how to do things right.
And the facts show that the huge problems of the past few years have hurt other countries less than they have the UK.
Figures from the Organization for Economic Cooperation and Development (OECD), which looks at how well rich countries are doing, show that the UK economy fell more than others in the first few months of the pandemic.
Once the economy started up again, the UK got back on its feet quickly, but not fast enough to make up for what it had lost.
But there might be a smaller difference between the UK and other countries than it seems.
Most countries judge the quality of their public services, like health care and education, by how much they cost, like a nurse’s salary. However, in the UK, they are counted differently based on the value of their services, such as hospital operations.
The UK’s numbers should show what happened when schools were closed, operations were canceled during Covid and when there were strikes.
The big picture is still the same, though. The Bank of England and the IMF think that the UK economy will shrink this year while the economies of other G7 countries will grow.
Some people, like pro-Brexit economist Julian Jessop, think the IMF was too negative about the UK’s future and that the differences being talked about are small, like a percentage point here or there.
He says that there is still “something to explain” why the UK’s economy isn’t doing well.
Does it have anything to do with Brexit?
People have different ideas about how much leaving the EU will cost. But, according to a Bloomberg report, it costs the UK economy about £100bn a year and makes the economy 4% smaller than it would have been if the UK had stayed in the EU.
He says business investment has also stopped since the referendum vote in 2016, which is another “drag on growth.” A policymaker at the Bank of England said that investments in the UK lost £29 billion because of Brexit.
EU workers used to be able to come to the UK to work without any restrictions, but now they can’t. Because of this, it’s hard for industries like hospitality, farming, and caregiving to find enough people to work.
Julian Jessop works as a fellow at the Institute of Economic Affairs, a free market think tank. He says he is an “optimist about Brexit.” He thinks that leaving the EU could bring big benefits, but he agrees that there have been short-term economic costs.
What else affect the economy?
When Russia invaded Ukraine, energy prices went up all over the world, but the effects were different in each country.
Mr. Emmerson says that the US has its fossil fuel sources and that some European countries have more energy sources than aren’t fossil fuels. For example, France has a large network of nuclear power plants, and Norway has a lot of hydropower.
“Britain is pretty open,” he says.
Also, the price of electricity in the UK depends on the price of gas, which is the most expensive way to make electricity. Mr. Jessop says that this has caused prices to go up across the economy and worsened inflation.
During the pandemic, the number of people working in most economies went down.
But again, the UK is different because its numbers haven’t gone back up since the crisis.
Economists still need to understand why. It doesn’t look like it’s because fewer workers from the EU exist.
Young people are choosing to go to school instead of work, and more people are getting long-term illness benefits.
There are signs that the number of people working is starting to grow again, which could help growth and tax revenue later this year.
Diane Coyle, an economist at Cambridge University, says that the UK’s poor performance also has deeper causes.
Even though the economy has slowed since the financial crisis of 2008, she says the problems go back much further because investment has been going down since the 1990s.
Because of this, the economy needed to be stronger to handle the triple shock of Covid, Brexit, and the war in Ukraine.
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From the government’s point of view, the UK economy is strong.
When told that the UK barely avoided a recession in 2022, Chancellor Jeremy Hunt said that the numbers showed “underlying resilience” but that the country was “not out of the woods.”