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The issues weighing down on the “chronically weak” British economy will not go away anytime soon, a leading economist at a British economics consultancy group has warned.
Ruth Gregory, deputy UK chief economist at Capital Economics, said the British economy was underperforming its peers as it struggles to comes to terms with a depleted work force, low levels of government spending, as well as dealing with the hit taken to its exports from Brexit, which are pressing issues that can’t be fixed in the short term.
British economic growth was still lagging the US, the eurozone, and “all G7 countries except Germany over three years on from the start of the pandemic”, Ms Gregory said in a major commentary.
“Many of the factors that explain the UK’s chronically weak GDP growth since the pandemic, such as the shrinking of the UK’s workforce and low export growth, won’t disappear any time soon. This explains why we expect the UK economy’s underperformance to continue for at least two years yet,” she said.
The British labour force has still to recover from the pandemic, with a significant number of people suffering long-term sickness and the NHS struggling to treat people with long-lasting health issues, while Brexit has reduced the number of continental European workers in certain industries and contributed to wages rising faster than in other countries, according to the analysis.
“The second driver of the UK’s poor performance is the weakness in government spending,” while Brexit, “which in both phases has undoubtedly contributed to the slower growth in UK exports relative to elsewhere,” Ms Gregory said.
The level of British GDP in the early part of this year was 0.5% below its level in the last three months of 2019. In contrast, GDP in the US was 5.4% higher, Canada’s was up by 3.7%, Italy’s was 2.5% higher, while GDP levels in France and Japan were about 1% higher than before the onset of the pandemic.
Capital Economics said “the good news” was that easing inflation and tax measures ahead of a general election will help stimulate the economy in the short term.
“We are less convinced that the UK’s labour supply shortfall and anaemic growth in exports will be reversed any time soon. After all, the challenges for the government — whoever that might be in 2025 — to reinvigorate the UK’s labour supply and ensure that migrant labour addresses sector-specific labour shortages are considerable,” Ms Gregory said.
“In short, a combination of the UK’s higher and longer-lasting inflation problem, its shrinking workforce, lower government consumption and low export growth has driven the underperformance of the UK economy since 2020,” Ms Gregory said.
“And as things stand, we are not hearing anything from policymakers to make us significantly more optimistic about the UK’s medium-term outlook,” she said.
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