BRitain’s growth prospects are the bleakest of all developed nations. The OECD predicted last week that Britain’s economy would not grow at all next year, the worst prospects for any OECD country. This follows IMF warnings in April that the UK will experience the worst growth of the G7 countries in 2023. is just a distant memory.
All countries have felt the brunt of the pandemic, followed by soaring oil and wheat prices triggered by Russia’s illegal war in Ukraine. But other developed economies have proven more resilient, enjoying an export-led recovery in the wake of Covid. Here in Britain, the economic malaise revealed by the 2008 financial crisis is long-term and structural.
This crisis was supposed to trigger a major economic overhaul: a reckoning with Britain’s dependence on growth fueled by rising levels of consumer debt made possible by rising house prices. Then-Shadow Chancellor George Osborne pledged to rebalance the economy from debt-led growth to more productive development, driven by business investment and exports, supported by an expansion of the UK’s manufacturing base and a reduction in the huge regional inequalities between the South East and the rest of the country.
Nothing like that materialized. Instead, the country’s less wealthy regions have been forced to bear the brunt of cuts to public services, undermining their potential to attract investment. Great Britain slow recovery of the financial crisis – average GDP growth in the decade since 2008 was one percentage point lower than it was on the eve of the year – was propelled by consumer spending and the resurgence of real estate prices. Productivity growth has fallen dramatically, taking Britain from second in the G7 for productivity growth before the financial crash, to second slowest after the crash. There remains a significant funding gap for fast-growing small and medium-sized enterprises (SMEs)a market failure to which the government has not responded adequately.
And Brexit pushed the UK economy in the exact opposite direction from what was needed after the financial crisis. The hard Brexit pursued by Boris Johnson – excluding Britain from the economic and political institutions of the EU in a rash attempt at a “clean break” – has undermined the fragile political settlement of the Good Friday Agreement in Northern Ireland and deepened economic evil.
Investments and exports are down due to Brexit. Now that similar countries are beginning to recover from the pandemic, the extent of the damage is becoming more evident. Last week a piece of analysis estimates that the economy is already 5% smaller than it would have been had the UK not left the single market and customs union. These impacts weren’t unexpected, but there simply wasn’t the slack in the sluggish UK economy to absorb them. Even the media publications that supported Brexit at the time acknowledge that Brexit is costing British voters day in and day out, in the form of higher trade costs, especially for exporting SMEs, lower wages and worse public services. funded, a cost we can ill afford.
Brexit has also affected the price of sterling; a fall in the value of the pound raised the cost of imports even as UK exports fell, contributing to the cost of living crisis. Economic forecasters predict that the pound could fall further against the dollar and the euro, particularly if relations between the UK and the EU over the Northern Ireland Protocol become even grumpier.
This hopeless government, mired in incompetence and scandal, has no answers. No industrial strategy, no growth plan outside London and the South East, no alternative ideas for exporters in the wake of Brexit. Ministers have no idea what to do about the UK’s dysfunctional housing market; last week the Prime Minister said he would widen the right to buy for housing association tenants with an announcement so flimsy it would make the back of an envelope look solid. Johnson appears determined to keep fighting with the EU over the Northern Ireland Protocol in a way that will only prolong the economic pain and drive another wedge between Britain and its biggest market in Ireland. export. Rising inflation will not only force real wage cuts on many workers; it will also erode the real value of public service spending, imposing further austerity on schools and hospitals.
The prime minister and chancellor can’t even agree on the fundamentals of the government’s approach, and a joint speech they were due to deliver this week was postponed. The OECD has critical the Chancellor for his fiscal policy, which, even with the multi-billion pound support package he announced last month, is broadly restrictive, just as the economy is in desperate need of a stimulus.
Conservative MP Tobias Ellwood was right to plead a week ago for Britain to join the EU single market. Brexit ideologues can oppose this all they want. But as Britain looks set to rediscover its role as the sick man of Europe, a closer economic relationship with the EU is starting to look inevitable, no matter how long it takes.