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. Why is the UK Economy lagging behind ?
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 the 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? 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. Russia’s invasion of Ukraine sent global energy prices soaring – but the impact varies between countries. The US has its own domestic sources of fossil fuels and some European countries have more alternative sources of energy, Mr Emmerson says. France, for example, has a large nuclear network, and Norway has significant hydropower.
“Britain is pretty exposed,” he says. Moreover, the way the UK prices electricity is based on the cost of gas, the most expensive form of electricity generation. That has pushed up bills across the economy and made inflation worse, Mr Jessop says. Most economies saw their workforce shrink during the pandemic. But again, the UK is an outlier, with numbers failing to bounce back after the crisis.
