Britain has come out of the pandemic and most economic indicators are blinking red. The outlook for the UK economy has deteriorated this year and next in response to Russia’s invasion of Ukraine, a messy separation process from the EU that remains unresolved and global supply chain blockages affecting many business sectors.
After Boris Johnson’s departure, a new government will have to break free of former Chancellor Rishi Sunak’s spending restrictions to ease inflationary pressures on households and avoid a potential recession with additional support for businesses.
These are the main economic problems facing ministers.
The consumer price index has risen from near zero to 9.1% during the pandemic and is expected to top 11% in October, when rising energy prices push the average combined gas and electricity bill above £2,800 a year.
Most economists think price growth will slow next year, but their predictions depend on the end of the war in Ukraine.
Brent oil nearly doubled in price to $128 a barrel in the year before the Russian invasion of Ukraine, before slipping — it was $102.5 on Thursday.
Britain suffered its biggest drop in national income (GDP) since the early 18th century, when the economy came to a standstill in April 2020. It recovered quickly, but the recovery slowed this year as the global economy began to stutter.
The UK imports more than half of its food and most of its energy, making it particularly vulnerable to global shocks.
The next official GDP figures, for May, are expected to show a third consecutive month of contraction. The UK economy is only 0.9% larger than in November 2019.
Ministers are under pressure from backbench Tory MPs to roll back the Johnson administration’s plans to raise taxes on businesses and households over the rest of parliament to help pay for spending during the pandemic.
However, the options for tax cuts are limited, especially when many conservatives are also urging the government to increase the defense budget in the face of the renewed threat from Russia.
The likelihood of further economic shocks and an aging population will further increase calls for additional money from the treasury.
France and Britain have been tracking each other for decades in charts showing the value of trade as a percentage of GDP.
The global recovery after the pandemic last year has lifted all boats. However, recent figures have shown that British trade has stagnated, while France’s position has improved dramatically. Brexit has been blamed by many economists for the less rosy outlook for the UK.
In its latest assessment, the Institute of Export & International Trade said total UK export earnings are down 2% from the previous month, “emphasizing the challenges businesses are facing as a result of the pandemic, the crisis in the supply chain, the conflict between Russia and Ukraine and Brexit”.
Official estimates show that the UK will have about 1.2 million fewer workers in 2022 than expected in 2019.
Many EU workers returned home during the pandemic, older workers took early retirement and tens of thousands of students returned to education.
David Miles, chief economic adviser to the Office for Budget Responsibility, said it is likely that some older workers and many students would return to the workforce, but it was reasonable to judge that the UK had experienced a permanent decline, leading to to persistent labor shortages in some industries.
Brexit and Covid have also combined to reduce the number of jobseekers, driving wages higher and hindering recovery.
Scientific spending has fallen, and a promise to increase research and development resources remains just that – a promise.
Sunak planned to increase R&D spending in the UK to 2.4% of GDP, from 1.74% last year. France already spends 2.2% of GDP, the US 3.1% and Germany 3.2%. The chancellor initially wanted to achieve this in 2025, but earlier this year pushed the date back to 2027.