The UK Faces Five Years of “Lost” Economic Growth, Warns Think Tank
The National Institute of Economic and Social Research (Niesr) has issued a stark warning that the UK is on track to experience five years of “lost” economic growth. The think tank attributes this dire forecast to a combination of the “triple shocks” of Brexit, the COVID-19 pandemic, and the war in Ukraine.
In its latest quarterly outlook, Niesr predicts that by 2024, income inequality, unemployment, and levels of debt will have all increased. The think tank also highlights that “elevated housing, energy, and food costs” will persist into next year, while gross domestic product (GDP) – a key measure of a country’s economic output – is expected to show minimal growth.
Currently, GDP is 0.5% below pre-pandemic levels and is not projected to surpass that level for another year. However, Niesr cautions that the economic outlook remains “highly uncertain” and warns of a 60% risk of a recession by the end of 2024.
Niesr’s forecast is more pessimistic than that of the Bank of England, which recently raised the base rate for the 14th consecutive time. While the Bank suggests that a recession is unlikely in the coming years, it does anticipate a prolonged period of stagnant economic growth until 2026.
The think tank also predicts that UK inflation will remain above the Bank’s 2% target until 2025, with a potential fall to 5.2% by the end of this year. Furthermore, real-terms wages in many regions of the UK are expected to remain below pre-pandemic levels by the end of 2024.
According to Niesr’s forecasts, the poorest households will experience a 17% decline in disposable incomes compared to five years earlier, while the richest households will only see a 5% drop.
Professor Stephen Millard, Niesr’s deputy director for macroeconomic modelling and forecasting, identifies the “triple supply shock” of Brexit, the COVID-19 pandemic, and Russia’s invasion of Ukraine as major factors contributing to the bleak economic outlook. He also acknowledges that the necessary monetary tightening to combat inflation has played a role.
Professor Millard emphasizes that addressing the UK’s poor growth performance remains the key challenge for policymakers as the next election approaches.
Government Plans to Revive the UK Economy
Last week, Chancellor Jeremy Hunt announced that he is working on plans to revive the UK economy. He stated that the upcoming autumn statement will outline a strategy to break free from the low growth trap and transform the UK into one of the most entrepreneurial economies in the world.
As the UK faces the prospect of five years of “lost” economic growth, the challenges ahead are significant. Policymakers must navigate the ongoing impacts of Brexit, the lingering effects of the COVID-19 pandemic, and geopolitical tensions. The focus on addressing income inequality, unemployment, and rising debt levels will be crucial in steering the country towards a more prosperous future.
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