Based on Statistics (ONS), the UK survived the recession and returned to growth in the first quarter of 2024, growing 0.6%. However, the UK’s GDP decreased by 0.3% between October and December, following a 0.1% fall between July and August. Despite the recession at the end of the year, GDP finally grew overall in 2023 by 0.1%.
Analysts called the recession mild, but despite inflation falling back to the Bank of England’s 2% target, the public still faces financial challenges with increased housing and energy costs. The Bank of England has increased interest rates fourteen times since 2021. Trying to curb the amount of money people spend by making borrowing more expensive and saving more rewarding will reduce inflation. The UK economic crisis is severe. Is there any hope?
The UK entered a recession at the end of 2023
The Bank of England held off cutting the base rate until August 2024. This is mainly due to inflation falling slower than predicted. The UK economy is facing several powerful headwinds. The UK economic crisis is in sight. The country is still recovering from the shock of the COVID lockdowns, and the financial fallout of Russia’s invasion of Ukraine continues to bite. Households struggle to manage surging energy and food prices and increasing rents and mortgages.
According to the Office for National Statistics (ONS), more than 90% of the population has noticed an increased cost of living. Meanwhile, the number of people finding it difficult to pay the bills is growing.
Soaring gas prices are a global issue that affects other countries, too.
In the year to December 2022, consumer price index inflation hit 10.5%. The figure means something that would have cost £100 a year ago costs £110.05 today. This is down slightly from 10.7% a month before. However, the UK is faring particularly weakly compared to other rich countries. It is the only G7 nation whose economy is smaller than before the COVID-19 pandemic.
Currently, 3.7% of the working-age population is unemployed—a low level by historical standards. However, the rate rose slightly in the most recent quarter, driven by those aged 16 to 24. The OBR predicts the level will increase to 4.9% next year as the economy is recovering. Living standards will decline by the most significant margin ever recorded next year, with disposable household incomes dropping by 4.3%. The decline will drag living standards back down to 2013/14 levels. It will not recover for another six years, which means a stable UK economic crisis.
UK economic growth decreased since the financial crisis of 2007 to 2009.
Low investment levels and policy uncertainty have slowed labour productivity growth, resulting in modest living standards.
The UK economy has faced large shocks since 2019. The COVID-19 pandemic caused substantial economic disruption. Energy prices ramped up following Russia’s full-scale invasion of Ukraine in 2022. One outcome of these events was that inflation increased to its highest rate since the early 1980s. UK price levels in April 2024 were 22% higher than at the beginning of 2021.
The economy shrunk sharply during the pandemic,
GDP was largely stagnant from early 2022 to the end of 2023—the early signs of a modest recovery in 2024 after the UK economic crisis. Considering a longer-term view, UK economic growth has been weaker since the global financial crisis of 2007 to 2009. According to ONS, GDP growth slowed from an annual average of 3.0% between 1993 and 2007 to 1.5% between 2009 and 2023.
Low labour productivity, the amount produced for every hour worked, has mainly caused this low economic growth. According to data from the OECD, productivity growth in advanced economies has slowed since the financial crisis, which has been especially harsh in the UK.
The UK economic crisis from the past
UK labour productivity growth slowed from an annual average of 1.9% between 1993 and 2008 to 0.4% between 2008 and 2023. These types of comparisons are sensitive to the years chosen. Annual productivity growth of around 2% before the financial crisis has fallen to around 0.5%.
Investment provides the building blocks—infrastructure, technology, and experts—for future productivity and economic growth. Researchers note that this is a long-term issue and a UK economic crisis. According to IMF data, total UK investment as a percentage of GDP has been lower than in other G7 states almost every year over the past 30 years.
Changing Policy Syndrome
Constant changes to policy make it harder for businesses to confidently plan and invest over the long term. One example of unreliability is the period surrounding the ‘mini-budget’ of September 2022. “Brexit, including the uncertainty over the UK’s relationship with the EU, has contributed to stagnating UK business investment in the years after the referendum in 2016,” said the economist Jonathan Haskel of Imperial College London.
A greater rate of business dynamism can improve productivity, especially if resources are moved to higher-productivity firms. However, an analysis by the Office for National Statistics revealed that business dynamism has been lower since the financial crisis, possibly explaining some of the slowdown in productivity in the UK.
What do predictions say?
The UK economy will grow by 0.7% this year and 1.5% next year. The financial agency expressed that Britain’s economy is approaching a soft landing, in which a central bank increases interest rates too much and too high. This is leading to an economic slowdown but avoiding a recession.
It said economic growth in the country is recovering faster than expected after a mild technical recession in 2023. The UK is now confronting its most serious vicious riots in 13 years, which were ignited by a social security incident on July 29. However, with global economic development slowing down and industries in developed countries facing challenges in the past decade, internal contradictions within European and US societies have intensified.
The UK “faces a severe economic and social crisis.
One of these issues will deepen without significant policy shifts.” The article contends that current “average UK real wages are now lower than 18 years ago, which is unprecedented in the country’s peacetime economic history.” According to a recent analysis by experts cited in the Financial Times, by 2024, the average household income in the UK will be lower than that of Slovenia.
