Last week, the governor of the Bank of England, Andrew Bailey, warned that Britain is likely to suffer a deeper and longer recession than other major industrialized countries. He also said that inflation will be more severe and persistent. Unique to the British experience is Brexit, which imposed additional costs and restrictions on EU exporters and reduced the supply of skilled labour. And after 10 years of austerity, publicly funded organizations entered the pandemic in a weak position and are now in even worse shape as they struggle with exploding living costs and worker shortages. But these are not the only reasons why the situation in the UK is so bad. These charts illustrate the many overlapping issues holding the country back:
Labor shortages
workforce Millions of people in the top two-thirds of the earnings scale saved money during the pandemic – because opportunities to spend on travel, eating out and shopping were severely curtailed. With around £260bn in bank deposit accounts, it was reasonable to expect the recovery to see a boom in demand. When restrictions eased, employers called on workers to meet increased demand in restaurants, shops and more. However, many self-employed and elderly people who stopped working during the pandemic have been left on the sidelines – unwilling to apply for work or unable to due to illness. The latest jobs figures, for the three months to April, show job vacancies at a new high of 1.3 million and unemployment at a 40-year low. According to the Institute for Employment Studies (IES), there are now about a million fewer people in the workforce than there were before the pandemic. Three quarters of this can be explained by older people and people with long-term conditions leaving the labor market. The rest can be blamed on the lack of workers in the EU after Brexit. Pay levels do not help attract people to the workplace. When adjusted for inflation, wages fell by 4.5% in the year to April, the biggest fall since comparable records began in 2001. Tony Wilson, head of the IES, says: “The labor market continues to see a toxic combination of falling real wage conditions, high unemployment and labor shortages.” Meanwhile, the government has shut down apprenticeship schemes related to the pandemic, leaving only the much-maligned apprenticeship fee, which many employers say is bureaucratic and costly.
Brexit has hit trade
trade There is no doubt, 18 months after the UK left the single market and customs union, that Britain’s trade has suffered significant and lasting damage. A report by the Center for Economic Policy Research (CEPR) and the UK in a Changing Europe found that “the desire to pursue a ‘hard’ Brexit had led to a significant increase in trade barriers and trade costs in goods and services, too. as new restrictions on migration flows”. In a review covering the years since the 2016 referendum, it said areas that voted most to leave the EU had been hardest hit, particularly since the post-exit trade deal came into force in January 2021. “It caused a major shock to UK-EU trade, with a sudden and persistent 25% drop in UK imports from the EU, relative to the rest of the world,” the report said, adding that costs had risen in some sectors. “There was an estimated 6% increase in food prices due to Brexit over the two years to the end of 2021.” And while exports have not declined, exporters have failed to benefit from the resurgence in global trade seen over the past year. A separate study by the London School of Economics found that Brexit “generally reduced how open and competitive Britain’s economy is, which will reduce productivity and wages over the next decade”. Since 2019, Britain has suffered an eight percentage point drop in trade openness – the sum of its exports and imports as a share of GDP. France, which has a similar trade profile to the UK, saw a much smaller fall – two percentage points – over the same period. “This decline is not explained by changes in the pattern of global trade during the pandemic,” the report said. “The UK also lost market share in three of the biggest non-EU import markets for goods in 2021: the US, Canada and Japan.”
Productivity and investment
productivity UK productivity has lagged behind that of Europe, the US and Japan for decades. Measured by the value produced each hour by a worker, British productivity is estimated to be around 20% lower than that of France and Germany and 30% lower than the US. Official figures estimate UK business investment is now down 9.1% from pre-pandemic levels after falling 0.5% in the first three months of 2022. The situation has been made much worse by Brexit, according to study by the Bank of England last year, which found that the leave decision “has reduced the level of investment by almost 25% in 2020-21”. The Bank said the impact “has been building gradually over the past five years, and at least until the start of the Covid pandemic may go a long way in explaining why there has been no increase in investment since the EU referendum”. Much of the fall was blamed on Brexit-related uncertainty, which is likely to continue as the government wrangles over the Northern Ireland protocol and several unresolved disputes over border controls.
Broken supply chains
supply chains The British economy is one of the most open in the developed world. Trade accounts for around a third of national income and 50% of the UK’s food is imported. So the havoc wreaked on global supply chains by the pandemic and the Covid lockdowns at factories in east Asia have hit the country hard. From autumn 2020, the ONS has been tracking shoppers’ views on the availability and choice of items in supermarkets and shops. The numbers show a drop last fall as pre-Christmas supplies of everything from toys to turkeys fell. Even when a final product was manufactured in the UK, the majority of its components were in most cases imported and suffered long supply delays. Poultry, for example, relies heavily on imported feed, but last year’s supply problems were also a result of seasonal worker shortages caused by Brexit. Since then most people have told pollsters they are happy with the range of products in stores. are prices they struggle to cope with. Away from supermarkets, businesses and consumers are reporting many shortages, including four- to six-month waits for construction material imports, as global demand for stone, concrete and wood soars. Vladimir Putin’s war has also severely affected some commodities. Cooking oil has been hit hard due to the key role that sunflower oils in both Ukraine and Russia play in supplying the world market.
Cultural deficit
visits to museums The government said it wanted to fund a revival of arts and cultural activities in the north and west of England as part of its leveling agenda. As we emerge from our third lockdown, culture secretary Nadine Dorries has proposed cutting the Arts Council’s budget by 15% for London-based organizations in favor of those in areas earmarked for growth. It was immediately accused of “flattening” by Labor and leading arts figures, with the National Theater pointing out that it was a touring company and such productions would be hit. Funding for arts and culture at local authority level has been marked by across-the-board cuts. Spending has fallen more than 30% since peaking in 2009, and there’s no sign of picking up anytime soon. Having grown since 2009, the museums lost millions of visitors during the pandemic. In 2018-19, with the removal of entrance fees to many venues – apart from special exhibitions – visitor numbers had soared, but are now almost half their previous levels. Industry leaders say cuts to transport routes, both bus and train, and chaos in the airline industry are discouraging domestic and foreign visitors and delaying the recovery by months, if not years.
Cuts in science funding
r and d In March, the UK Agency for Research and Innovation (UKRI) – which controls science funding in Britain – told universities that its budget for international development projects had been cut from £245m to £125m. Bob Ward, director of policy at the Grantham Research Institute on Climate Change and the Environment, said slicing the budget in half undermined the chancellor’s commitment to make the UK a “scientific superpower”. Academics are disappointed that £250m of funding from the European Horizon programme, a research behemoth that has funded some of the latest medical and scientific breakthroughs, has been mired in a row over the Northern Ireland protocol. Without access to Horizon research, the UK is heading for the second tier, science experts have warned. In Rishi Sunak’s defence, the UK has pledged to spend 2.4% of GDP on research and development, up from 1.74% last year. France already spends 2.2% of GDP, the US 3.1% and Germany 3.2%. The chancellor originally wanted to achieve this by 2025, but got cold feet and pushed the date back to 2027. There have been steady increases for 30 years, but the plan includes an increase from £9 billion of public money in 2017 to £22 billion over five years, which seems like a big ask. Like many aspects of government spending at the moment, the plans are lagging and have needed huge increases in recent years to meet the target.
UK development vs G7
g7 championship The poor health of the UK economy was largely masked during the pandemic by public spending on health and recovery programs related to Covid. Now that many of them are retiring, the country’s growth rate will rely much more on the private sector. The International Monetary…
