Dashboard of decline: seven charts that explain Britain’s economic crisis – The Guardian

by | Jul 2, 2022 | Financial

Dashboard of decline: seven charts that explain Britain’s economic crisis London’s financial district. The UK faces a deeper downturn than many other nations Photograph: Shomos Uddin/Getty ImagesLondon’s financial district. The UK faces a deeper downturn than many other nations Photograph: Shomos Uddin/Getty ImagesThe UK looks set for a recession and a longer battle with inflation than many of its neighbours. This is whyThe UK is sliding towards a recession. Only six months ago, a strong recovery was expected, but the impact of the pandemic, the slow return to pre-Covid work patterns and soaring inflation driven by the Ukraine invasion have depressed the economy.Last week the governor of the Bank of England, Andrew Bailey, warned that Britons are likely to suffer a deeper and longer downturn than other major industrialised nations. He also said inflation would be more severe and persistent.Unique to the British experience is Brexit, which has imposed extra costs and restrictions on exporters to the EU and limited the supply of skilled labour. And after 10 years of austerity, publicly funded organisations entered the pandemic in a weak position and are now in an even worse state as they grapple with the rocketing cost of living and a shortage of workers. But these are not the only reasons why the situation in the UK is so particularly bad. These charts illustrate the many overlapping issues that are holding the country back:Labour shortagesworkforceMillions of people in the top two-thirds of the earnings ladder saved money during the pandemic – because opportunities for spending on travel, eating out and shopping were severely curtailed. With about £260bn in bank deposit accounts, it was reasonable to expect the recovery to see an explosion of demand.When restrictions eased, employers put out a call for workers to meet that increased demand in restaurants, shops and more. However, many self-employed and older people who stopped working during the pandemic have stayed on the sidelines – unwilling to apply for jobs, or unable to because of illness.The latest jobs figures, for the three months to April, show vacancies hitting a fresh high of 1.3m, and unemployment at a 40-year low.According to the Institute for Employment Studies (IES), there are now about a million fewer people in the labour force than before the pandemic. Three-quarters of this can be explained by older people and those with long-term health conditions quitting the jobs market; the rest can be blamed on the lack of EU workers post-Brexit.Pay levels are not helping draw people back to the workplace. When adjusted for inflation, pay fell by 4.5% in the year to April, the biggest fall since comparable records began in 2001. Tony Wilson, head of the IES, says: “The labour market continues to see a toxic combination of falling real-terms pay, high worklessness and labour shortages.”Meanwhile the government has switched off its pandemic-related apprenticeship schemes, leaving only the much-maligned apprenticeship levy, which many employers say is bureaucratic and costly.Brexit hit to tradetradeThere is little doubt, 18 months after the UK quit the single market and customs union, that Britain’s trade has suffered significant and sustained damage. A report by the Centre for Economic Policy Research (CEPR) and the UK in a Changing Europe thinktank found the “desire to pursue a ‘hard’ Brexit had resulted in a major increase in trade barriers and trade costs in goods and services, as well as new restrictions on migration flows”.In a review covering the years since the referendum vote in 2016, it said the areas that voted most heavily to leave the EU had been the worst affected, mostly since the post-exit trade agreement came into effect in January 2021.“It caused a major shock to UK-EU trade, with a sudden and persistent 25% fall in UK imports from the EU, relative to the rest of the world,” the report said, adding that costs have risen in some sectors. “It is estimated that there has been a 6% increase in food prices due to Brexit, over the two years to the end of 2021.”And while exports have not gone down, exporters have failed to benefit from the resurgence in global trade seen over the past year. A separate study by the London School of Economics found that Brexit had “more broadly reduced how open and competitive Britain’s economy is, which will reduce productivity and wages in the decade ahead”.Since 2019, Britain has suffered an eight-percentage-point fall in trade openness – the sum of its exports and imports as a share of GDP. France, which has a similar trade profile to the UK, has experienced a far smaller fall – two percentage points – over the same period. “This decline is not explained by changes in the pattern of global trade during the pandemic,” the report said. “The UK also lost market share across three of its largest non-EU goods import markets in 2021: the US, Canada and Japan.”Productivity and investmentproductivityThe UK’s productivity has lagged behind that of Europe, the US and Japan for decades. Measured by the value produced each hour by a worker, British productivity is estimated to be about 20% lower than that of France and Germany and 30% lower than the US.Official data estimates that UK business investment is now 9.1% down on pre-pandemic levels after a 0.5% fall in the first three months of 2022. The situation was made much worse by Brexit, according to a Bank of England study last year, which found the leave decision “has lowered the level of investment by almost 25% in 2020-21”. The Bank said the impact “has built gradually over the past five years, and at least up until the start of the Covid pandemic it can largely explain why there was no growth in investment since the EU referendum”.Most of the fall was blamed on Brexit-related uncertainty, which is likely to persist as the government wrangles over the Northern Ireland protocol and many unresolved disputes over border checks.Broken supply chainssupply chainsThe British economy is …

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