How Can the UK Economy Catch Up to Other Wealthy Nations? – BBC News
Quick Summary
In the UK, the economy is struggling due to the pandemic, the war in Ukraine, and rising costs of energy and food. The UK is lagging behind other rich countries such as the US, Germany, and France. According to the Organisation of Economic Cooperation and Development, the UK economy fell further than others in the first months of the pandemic and the recovery pace was not fast enough. Brexit is also a factor, with estimates of a £100bn cost to the economy annually. Other factors include Russia’s invasion of Ukraine, uncertainty and the process of adjustment, and the inability of the hospitality, agriculture, and care sectors to find enough staff.
Full Story – Why is UK economy lagging behind other rich nations? – BBC News
By Lucy HookerBusiness reporter, BBC News
18 February 2023
Image source, Getty Images
The UK economy is struggling – and people are feeling it in their pockets, as wages fail to keep up with rising prices.
The International Monetary Fund (IMF) predicts the UK economy will shrink this year while every other major economy will grow.
The Bank of England also forecasts a recession in the UK in 2023 – albeit one that is shorter and less severe than previously forecast.
Perhaps it’s not surprising the outlook is bleak given the pandemic, the war in Ukraine, and soaring costs of both energy and food.
But why is the UK seemingly faring worse than other rich countries such as the US, Germany and France?
Is the UK really lagging behind?
Forecasts are never perfect. There are so many factors that affect economic growth – from geopolitics to the weather – that, inevitably, predictions often miss the mark. But they can point in the right direction.
And the existing evidence shows other countries have taken less of a hit from the huge challenges of recent years than the UK has.
Figures from the Organisation of Economic Cooperation and Development (OECD), which looks at how rich countries are performing, show the UK economy fell further than others in the first months of the pandemic.
The UK’s pace of recovery was fast once the economy reopened – but not fast enough to make up the lost ground.
But the difference between the UK and others may not be quite as big as it appears.
That’s because most countries measure the output of their public services, such as health and education, based on the costs – a nurse’s wage, for example. In the UK they are accounted for differently, by valuing the services delivered – such as operations in hospital.
As a result, the UK’s figures better reflect the impact of closed schools and cancelled operations during Covid, as well as disruption due to strikes.
The bigger picture, however, remains: the Bank of England and the IMF both expect the UK economy to shrink this year, while other G7 countries are expected to grow.
Some observers, including pro-Brexit economist Julian Jessop, believe the IMF was overly gloomy about the UK’s prospects and that the differences under discussion – a percentage point here or there – are small.
Nevertheless, he says, there is still definitely “something to explain” about the UK’s flagging economic performance.
Is it all down to Brexit?
Estimates about the cost of Brexit vary – according to a report by Bloomberg it is costing the UK economy roughly £100bn a year, and the economy is 4% smaller than it might have been if the UK had stayed in the EU.
“The EU is a very rich part of the world,” says Carl Emmerson, deputy director of the Institute for Fiscal Studies, an independent think tank. “And we’ve chosen, for better or worse, to make trade with that grouping of countries a lot more difficult, so it’s clearly going to be something that makes it harder for the UK economy to grow.”
EU workers used to come freely to work in the UK but can no longer do so, making it hard for the hospitality, agriculture, and care sectors to find enough staff.
Julian Jessop is a fellow at the free market think tank the Institute of Economic Affairs and describes himself as a “Brexit optimist”. He believes there are big potential gains from leaving the EU, but agrees there have been short-term economic costs.
“We’re still in a sort of transition phase, where the negatives are dominating,” he says.
But he says those negatives are “smaller than people have been arguing” and “more likely to be temporary, because a lot of them have to do with uncertainty and the process of adjustment”.
What else is affecting the economy?
Russia’s…
