Six charts that show how the UK economy is in crisis | Economic growth (GDP)

Britain emerged from the pandemic with most economic indicators flashing red. The outlook for the UK economy has weakened this year and next in response to the Russian invasion of Ukraine, a messy divorce process with the EU that remains unresolved and supply chain lockdowns world that affect many sectors of activity.

After Boris Johnson’s departure, a new government will need to break free from former Chancellor Rishi Sunak’s spending constraints to ease inflationary pressures on households while preventing a possible slide into recession with additional support for businesses.

Here are the main economic issues that ministers will have to deal with.

Inflation

The consumer price index has risen from almost zero during the pandemic to 9.1% and is expected to reach 11% by October, when rising energy prices will push up average combined gas and electricity bills. electricity above £2,800 per year.

Most economists think price growth will slow next year, but their forecast hinges on the end of the war in Ukraine.

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The price of Brent almost doubled to $128 a barrel the year before Russia invaded Ukraine, before falling back – it was $102.5 on Thursday.

GDP

Britain has suffered the biggest drop in its national income (GDP) since the turn of the 18th century, when the economy was mothballed in April 2020. It has rebounded quickly, but the recovery has slowed this year so that the global economy was beginning to stutter.

The UK imports more than half of its food and the majority of its gas and oil, making it particularly vulnerable to global shocks.

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The next official GDP figures, for May, are expected to show a third consecutive month of contraction. The UK economy is only 0.9% larger than in November 2019.

Tax burden

Ministers are facing pressure from Tory backbenchers to roll back Johnson administration plans to raise business and household taxes on the rest of parliament to pay for spending during the pandemic.

However, the reach of the tax cuts is limited, especially when many conservatives are also urging the government to increase the defense budget in the face of the renewed threat from Russia.

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The likelihood of further economic shocks and an aging population will add to demands for additional liquidity from the public treasury.

British trade

France and Britain have tracked each other for decades in charts showing the value of trade as a percentage of GDP.

The post-pandemic global recovery last year lifted all boats. However, recent figures have shown that British trade has stagnated while France’s position has improved considerably. Brexit is blamed by many economists for the UK’s less optimistic outlook.

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In its latest assessment, the Institute of Export & International Trade said total export revenue fell 2% in the UK from the previous month, “highlighting the difficulties businesses are facing due to the pandemic. , the supply chain crisis, the Russian-Ukrainian conflict. , and Brexit”.

British workforce

Official estimates show the UK has around 1.2 million fewer workers in 2022 than expected in 2019.

Many EU workers have returned home during the pandemic, older workers have taken early retirement and tens of thousands of students have resumed their studies.

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David Miles, the chief economic adviser at the Office for Budget Responsibility, said it was likely that some older workers and many students would return to the labor market, but it was reasonable to judge that the UK had suffered a permanent decline, leading to lasting labor shortages in some industries.

Brexit and Covid have also combined to reduce the number of workers looking for work, pushing up wages and hampering the recovery.

R&D expenses

Spending on science has plummeted and the promise of increased funding for research and development remains a promise nonetheless.

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Sunak planned to increase UK R&D spending to 2.4% of GDP, from 1.74% last year. France already spends 2.2% of its GDP, the United States 3.1% and Germany 3.2%. The Chancellor initially wanted to achieve this by 2025, but earlier this year pushed the date back to 2027.

This article was amended on July 8, 2022 because an earlier version incorrectly stated that the UK imported most of its energy. This meant that the UK imports the majority of its gas and oil.

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