Wednesday the 12th signalled a bleak day for Britain’s economy, as the International Monetary Fund (IMF) released their updated economic growth forecast. The UK’s economy is again predicted to shrink. At -0.3%, we rank last in growth among the G20 countries. This includes Russia, despite numerous waves of sanctions due to the Ukraine war that were meant to cripple their economy. Yet the UK still is worse off. What does this say about our country’s leadership?
This decrease in growth is not universal. While Britain’s economy is struggling, the USA’s economy is projected to grow by 1.6% and the eurozone by 0.8% in 2023. Furthermore, the USA and several European countries including Germany have passed legislation to deal with rampant levels of inflation in their countries. The most prominent of such legislation is America’s inflation reduction act which invested $370 billion into reducing energy costs for Americans. Whilst other countries deal with the problems their citizens face, the UK government has not.
Inflation is at its highest in 40 years and interest rates have reached 4.25%. While all of this is happening our public service sector is on strike. Nurses, doctors, and railway workers among others have been striking all winter in demand of fair pay and this trend could continue throughout the summer with the nurses’ union RCN this week rejecting a pay offer by the government.
When compared with Europe and America, the UK’s historic ‘greatness’ seems to be faltering. If we look at the bigger picture, over the last year the value of the pound has fallen substantially against the dollar, increasing the pressure inflation is having on UK households along with the energy crisis. While other countries are having issues with the soaring prices of wholesale natural gas it seems to be that the British economy and its people are suffering most. The question is why?
There are a few explanations that could be given to answer this question but, as always, they are remarkably hard to disentangle from each other. Brexit is one. When Brexit happened, economists predicted a tough trade-off between growth and inflation due to labour shortages and new trade barriers. Due to a lack of willing labour, the UK’s labour market is widely accepted to be less flexible than before we left the EU, creating problems in industry and with the economy.
Of course, all of these effects are compounded by the impact the pandemic had on all global economies. At the height of the pandemic, levels of trade dipped for all G7 countries, but at the start of this year these levels had recovered in all the G7 except the UK. It seems to be that ‘Global Britain’ is more closed off and not quite bouncing back as the rest of our contemporaries are.
The Chancellor Jeremy Hunt, however, strikes an optimistic tone and has begun to state that Britain’s economy is ‘back’, after meetings at the IMF where his plans for growth were accepted.
Despite what Hunt says about Britain’s economy it has only just reached what it was pre-pandemic and is still recovering from his predecessor Kwasi Kwarteng’s mini budget which triggered a crisis in the Bank of England, and contributed to food inflation reaching 10.6%, the FTSE 100 dropping by 232 points, and the pound falling to a record low against the dollar.
However, there are solutions that have been proposed for the issues facing this country. Last year, when Boris Johnson was still Prime Minister, groups that represented unions, women, ethnic minorities, developing world nations and young people wrote a letter urging him to avoid the mistakes that came after the financial crash. Even though there is a different prime minister the message still rings true; to improve the living standards the current PM Rishi Sunak needs to reject austerity and not scale back funding for the public sector workers of this country.
Sunak also needs to face the climate crisis with an appropriate and proportionate plan to the problem we face. Not only would this reduce damage to our planet, it would reduce our economy’s dependence on oil prices, stabilising Britain’s economy against the actions of foreign powers like Russia and Saudi Arabia. Investing in renewables and moving from fossil fuels to renewable energy could stop the economy depending on the volatile prices of natural gas with the added consequences of reassuring business and investment which has declined since Brexit.
Finally, to regain its place on the world stage Britain needs to be more open. With an ageing population and declining population growth, the UK just like many other countries around the world needs the services and work provided by immigration. We need to embrace our globalised world instead of rejecting it and suffering because of it.
However, this does not seem to be the path Prime Minister Sunak wants to or is willing to take. His government refuses to offer what unions consider appropriate pay to their workers, disrupting the lives of hundreds of thousands of people. The government also plans to decrease tax and therefore decrease spending in areas such as social care. The restrictions on immigration applied by Brexit also seem to be an issue the Conservatives are unwilling to compromise on as the message from the Home Secretary Suella Braverman is no less cruel. It seems that the great standard of living and political management people would expect from Britain as a global power only years ago is failing.
