The UK is also lacking the game-changing factors that helped power it out of previous slumps. The textbook levers for generating some growth - including increased immigration and closer trading ties with Europe - are almost all too toxic for the divided Tory party, whose MPs are unlikely to seek an election before its due date of January 2025. Low productivity and a deficit of workers make it difficult for the economy to regain altitude after any setback. That reflects a number of deep-rooted structural problems for the UK since it left the European Union. The longer-term malaise is reflected in how the country’s trend growth rate has fallen to just 1.2% from 2.5% before the financial crisis, according to Bloomberg Economics. He provided some relief by noting it’s not clear rates need to rise as much as investors expect. “Rises in the relative prices of goods and energy make us collectively worse off,” BOE Deputy Governor Ben Broadbent said in a speech hours before Truss stepped aside. Policymakers admit the nation will feel poorer. Most economists anticipate the first 75 basis point shift in rates since 1989. Central bankers led by Governor Andrew Bailey intervened to prop up a gilt market roiled by Truss, but are now turning back to the inflation battle and are likely to tighten monetary policy again next month. A million jobs remain unfilled as older people have dropped out of the workforce in droves, and younger ones have stayed in education.įorced to focus on the inflation shock it was late to spot, the BOE has raised rates to levels not seen since the global financial crisis more than a decade ago. While unemployment has plunged to the lowest in 48 years, at least 300,000 workers dropped out of the labor force since the pandemic, making it more costly for companies to hire and expand. The war between Russia and Ukraine sapped the flow of natural gas, sending prices soaring. Trade friction with the EU and China along with global supply chain chaos have boosted the cost of goods. Now, all those tailwinds have turned direction. That along with declining oil and natural gas prices and a free flow of workers from the EU sent inflation on a downward path until the pandemic, enabling interest rates to drop to historic lows. Even beyond the short term, the painful reality is that the factors that drove the UK in the past three decades - cheap goods, labor, credit and energy - are all moving in reverse.īritain’s economy thrived through the 1990s and early 2000s along with growing trade with the European Union and Asia, which reduced the cost of goods and services.
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