Britain under Prime Minister Boris Johnson is running into the most significant headwinds it’s faced since the 1970s, heaping pain on an economy still reeling from Brexit and the pandemic. After suffering from unprecedented shocks in recent years, the nation is succumbing to more intractable problems marked by plodding growth, surging inflation and damaging strikes.
The impact on the UK economy post-Brexit
The impact of Brexit on the UK economy will be worse in the long run compared to the coronavirus pandemic, the chairman of the Office for Budget Responsibility has said. Richard Hughes said leaving the EU would reduce the UK’s potential GDP by about 4% in the long term. He said forecasts showed the pandemic would reduce GDP “by a further 2%”. “In the long term, it is the case that Brexit has a bigger impact than the pandemic”, he told the BBC. His comments come after the OBR said the cost of living could rise at its fastest rate for 30 years, suggesting inflation could hit almost 5%. Speaking after Wednesday’s Budget, Mr Hughes said recent data showed the impact of Brexit was “broadly consistent” with the OBR’s assumption that leaving the EU would “reduce our long-run GDP by around 4%”. “We think that the effect of the pandemic will reduce that (GDP) output by a further 2%,” he added.
The pandemic and Brexit have played a part in current supply chain issues across the UK. They have further exposed the scarcity of lorry drivers, resulting in recent shortages of products for businesses and some empty shelves for customers. However, in the OBR’s latest report, the independent body said “supply bottlenecks had been exacerbated by changes in the migration and trading regimes following Brexit”. Supply chain issues have led to the government granting short-term visas to EU workers across specific sectors, including the haulage industry. The British Poultry Council has said turkey farmers will do their best to ensure Christmas “is as normal as it can be”, but warned shortages are likely, due to a lack of seasonal overseas workers. The government has assured consumers that turkeys will be available for the festive season and has also deployed temporary visas to bolster worker numbers.
PM Boris Johnson has paralysed the nation.
Boris Johnson entered Downing Street in July 2019 with a promise. The doubters and doomsters would get it wrong again: his leadership would make Brexit a success, re-igniting an economy stalled by European divisions. Three years later, almost to the day, he prepares to leave with the country reeling from a political implosion of his own making and an economy teetering on the brink of recession. The cost of living is accelerating at the fastest annual rate in four decades, while families face the worst hit to real disposable income on record. Neither was the most significant global health emergency in a century and war on European soil.
Britain’s economy suffered the sharpest fall in the G7 in 2020 as the coronavirus pandemic brought a sudden stop to economies around the world. When the country reopened after lockdown, Johnson pointed to the fastest growth rates in the G7. However, that snapback is partly down to the scale of decline, as the UK – more dependent on consumer-facing services – entered lockdown later as and for longer than some other nations, leading to the worst recession for 300 years. During this succession of generational shocks, experts say deep structural fault lines have been exposed – all made more difficult to tackle by three problems:
- The legacy of austerity
- Brexit
- Johnson lacks a coherent plan to deal with them all
“This whole period is his legacy,” said Prof Jagjit Chadha, the director of the National Institute of Economic and Social Research, who believes that without Johnson’s pivotal role in the Vote Leave campaign six years ago, Brexit might not have happened. At least not in the same way. “It has dominated our economic performance since 2016,” he said, referring to the year in which Britain voted to leave the EU.
About the resignation of PM Boris Johnson
The resignation of Prime Minister Boris Johnson deepens the uncertainty hanging over Britain’s economy, already under strain from an inflation rate heading for double digits, the risk of a recession and Brexit.
The race to replace Johnson, who announced Thursday that he would quit office, could take weeks. That would leave the world’s fifth-biggest economy at risk of further drift when sterling is near two-year lows against the dollar. The Bank of England is in a dilemma about raising interest rates without damaging economic activity.
The duration of Conservative Party leadership contests varies. Theresa May needed less than three weeks to win after David Cameron quit in 2016 as other contenders dropped out. But it took Johnson two months to become the new leader after May announced her intention to resign in 2019. Even more than many other countries, Britain is feeling the pressure of an inflation rate at a 40-year high of 9.1%. The BoE thinks it will top 11% later this year. The International Monetary Fund said in April that Britain faced more persistent inflation and slower growth than any other major economy in 2023. The Sterling’s recent fall has added to the inflation pressures since then, although the prospect of increased public spending or tax cuts to shore up the Conservative Party’s fortunes pushed up the pound a bit on Thursday.
But whoever replaces Johnson can only do so much to offset the impact of the surge in global energy and food prices. While the exit of Johnson ends another chapter in one of the most tumultuous periods in modern British political history, it remains to be seen if his successor can calm things down. Kallum Pickering, an analyst at Barenberg, said Britain’s economy would benefit if Johnson were replaced by “a more diligent and serious individual”. But the Citi analysts said they were skeptical that the different factions within the Conservative Party would unify around a clear strategy.” In the months ahead, we see the UK heading into a once-in-a-generation squeeze in living standards, absent a defined plan, and facing deep governmental division. The risk of profound policy error is therefore significant,” they said. “An early election should also not be discounted, though we still expect a contest only in 2024.”
Conclusion
Even more than many other countries, Britain is feeling the pressure of an inflation rate at a 40-year high of 9.1 per cent. The BoE thinks it will top 11 per cent later this year. The International Monetary Fund said in April that Britain faced more persistent inflation and slower growth than any other major economy in 2023. The Sterling’s recent fall has added to the inflation pressures since then, although the prospect of increased public spending or tax cuts to shore up the Conservative Party’s fortunes pushed up the pound a bit on Thursday. But whoever replaces Johnson can only do so much to offset the impact of the surge in global energy and food prices.
