One of the biggest drags on the UK economy has been declining productivity. Prior to the 2016 Brexit referendum, UK productivity was already lagging behind other G7 nations. However, it has stalled further in recent years. Getting business investment and productivity growth back on track will be critical for lifting living standards.
The Covid-19 pandemic also dealt the economy a significant shock. Lockdown restrictions caused GDP to plummet in 2020, with the economy shrinking by 9.7% overall. While GDP bounced back strongly as restrictions eased, economic output is still below pre-pandemic levels. Getting the economy back to full health will require supporting businesses and jobs.
High inflation has emerged as another risk, driven by soaring energy and food prices. UK CPI inflation hit a 40-year high of 9.4% in June 2022 and remains well above the Bank of England’s 2% target. As rising prices squeeze household budgets, dampening consumer confidence and spending power, taming inflation is an urgent priority.
Meanwhile, Brexit continues to drag on growth, especially as problems emerge in trade flows. New customs arrangements, border checks and regulatory divergence are creating frictions. A CBI survey in April 2022 found that 75% of UK exporters are still facing difficulties with Brexit changes.
Nonetheless, all is not gloomy – there are some bright spots and opportunities.
The UK still boasts key economic strengths, including world-class industries like financial services and the creative sector. The UK is also a leader in emerging tech and Green industries that could support future growth.
New trade deals are being signed, for example the agreement with Australia in late 2021. Although not a massive economy, further deals could help expand market access. The UK also has the opportunity to diverge from EU regulations and create more business-friendly policies.
With the right policies, the UK could see a productivity revival. Upgrading infrastructure, increasing R&D spending and incentivising training could help. The pandemic also spurred innovations around flexible working that may enable more efficient business practices.
The government is also directing investment into “levelling up” less prosperous regions. Major infrastructure projects like HS2 aim to spread economic growth across the UK, driving regeneration in struggling areas.
While risks remain, the UK still holds many cards – including its language, timezone, legal system and open market. With astute economic management and pro-business policies, the UK can reboot growth, regain competitiveness and build a thriving post-Brexit economy.