Britain’s economy is forecast to shrink by 0.4% in 2023, more than any other in the Group of Seven richest nations, according to the Organization for Economic Cooperation and Development (OECD). Britain is the only G-7 member whose economy has yet to return to pre-pandemic levels.
In the Group of 20, or G-20, largest economies, only Russia’s is expected to fare worse than Britain’s in the coming two years.
The OECD said Tuesday that global growth would slow down significantly, including in the United States and Europe. Only the British and German economies are forecast to contract in 2023.
The forecast comes days after Paris overtook London as Europe’s biggest stock market. Analysts say global economic pressures have been compounded in Britain by recent political chaos.
Cost crisis
The British government’s Office for Budget Responsibility, which gives an independent analysis of the nation’s economy, warned that living standards over the next two years are set to fall by the biggest amount on record, as disposable income is squeezed by stagnating wages and rising prices.
Inflation is at a 41-year high of 11.1%, driven by soaring energy bills. Food costs have increased by 15% since this time a year ago.
Britons are cutting back on spending. Hayley Gray, who lives in Bradford, northern England with her seven children, says Christmas this year will be very different.
“Each week I’d normally buy a couple of things, but I’m not able to, because I’m having to make sure I’ve got money for gas and electric … [The children] are going to have hardly anything come Christmas,” Gray told ITN News. Like many families, Gray is taking on debt to pay for the festive period. She said she fears she may not be able to pay it off in the new year.
Charity food banks are seeing unprecedented demand.
“It used to be that those people on the margins of the society who couldn’t access a kitchen were homeless people, who needed that support. Now it’s people in work, it’s people who can’t afford to turn on their cookers, who are needing support,” said Charlotte Hill, CEO of the Felix Project charity in London.
Tax rises
Britain’s economic pain is likely to worsen. The country’s new chancellor, Jeremy Hunt, announced new tax increases and spending cuts last week to try to reduce the deficit and reassure financial markets. He blamed the coronavirus – and Russia’s invasion of Ukraine.
“Global factors are the primary cause of current inflation,” Hunt told lawmakers November 17. “Most countries are still dealing with the fallout from a once in a century pandemic. The furlough scheme, the vaccine rollout and the response of the NHS [National Health Service] did our country proud. But they all have to be paid for.”
The furlough scheme refers to the government subsidizing millions of workers’ wages during the pandemic lockdown.
“The lasting impact on supply chains has made goods more expensive and fueled inflation. And this has been worsened by a made-in-Russia energy crisis,” Hunt said.
Ideology
Those crises are global but Britain has unique problems, said analyst John Kampfner of the London-based policy institute Chatham House.
“Britain’s politics and Britain’s economy are both in a state of somewhere between disarray and mayhem. Of course, all countries are facing considerable difficulties from inflation to energy insecurity shortages, price rises and other associated difficulties. But they are compounded in Britain by a series of ideologically driven governments whose competence was very much open to question, culminating in the disastrous 45 days of Liz Truss,” Kampfner told VOA.
Former Conservative Prime Minister Liz Truss’s plans to slash taxes and boost spending – the reverse of her successor, Rishi Sunak – sent government borrowing costs soaring and the British pound plummeting, ultimately forcing her to resign
last month. The effects are still being felt.
London overtaken
For the first time since record-keeping began, Paris last week overtook London as Europe’s biggest stock market, according to figures from Bloomberg News, based on the combined market value of listings on the Paris bourse compared to the London Stock Exchange in U.S. dollars.
French luxury goods makers have seen significant share price increases in recent weeks, while the British pound has fallen more sharply than the euro, reducing the relative value of British shares.
Brexit
Analysts say Britain is suffering from another homemade problem: Brexit. Britain’s 2016 vote to leave the European Union meant new economic barriers with its biggest trading partner.
Simon Spurrell founded the Cheshire Cheese Company in 2010 and built a prosperous export business. When new Brexit trading rules took effect in 2021, the company lost $285,000 worth of European business. Last month, Spurrell decided to sell to a bigger local rival, Joseph Heler Cheese, which has a presence in the EU and so is able to trade freely.
“We no longer have access to the EU, (which) meant that we needed to try and find a solution,” Spurrell told Agence France-Presse. “We now have a majority shareholder owner in Joseph Heler, which means we not only have access to the EU again, due to their Netherlands hub, we also have the ability to grow again.”
It’s clear that Brexit is holding back growth, Kampfner said.
“It was camouflaged by the pandemic in 2020 and 2021, so the direct consequences of many of the Brexit decisions couldn’t be discerned,” he said. “They are now eventually, belatedly being seen. But the Conservatives are not going to touch a decision to go anywhere close to rejoining the (EU) customs union or the single market. And (the opposition) Labor is not going to do that either.”
The prime minister made that policy clear in a speech Monday at the Confederation of British Industry.
“I voted for Brexit, I believe in Brexit, and I know that Brexit can deliver, and is already delivering enormous benefits and opportunities for the country, migration being an immediate one, where we have proper control of our borders,” Sunak said.