The UK economy is facing a bleak outlook, as a triple shock of Brexit, Covid and the Ukraine war has severely damaged its prospects for growth and recovery. A think tank has warned that the UK will experience five years of “lost economic growth”, with the poorest regions and households bearing the brunt of the pain.
Brexit, Covid and Ukraine War: A Triple Shock
The National Institute for Economic and Social Research (Niesr), one of the UK’s leading independent research institutes, has published its latest forecast for the UK economy on Tuesday. The report paints a grim picture of the economic challenges and risks that the UK is facing in the wake of three major shocks: Brexit, Covid and the Ukraine war.
Brexit, which took effect on 1 January 2021, has disrupted trade and investment flows between the UK and the EU, its largest trading partner. The report estimates that Brexit has reduced the UK’s potential output by about 4% compared to a scenario where it remained in the EU.
Covid, which has caused more than 150,000 deaths and over 10 million infections in the UK, has also inflicted a heavy toll on the economy. The report estimates that Covid has reduced the UK’s potential output by about 2% compared to a scenario where there was no pandemic.
The Ukraine war, which erupted in late 2022 after Russia invaded its eastern neighbour, has also added to the economic woes of the UK. The report estimates that the Ukraine war has reduced the UK’s potential output by about 0.5% compared to a scenario where there was no conflict.
Lost Economic Growth: The Implications
The report forecasts that the UK’s gross domestic product (GDP), which measures the total value of goods and services produced in the country, will not return to its pre-pandemic level until mid-2023. This means that the UK will have five years of “lost economic growth”, as its GDP will be lower than what it could have been without the shocks.
The report also warns that the lost economic growth will have significant social and regional implications, as it will widen the gap between the rich and poor, and between different parts of the country. The report predicts that real wages, which take into account inflation, will remain below their pre-pandemic level until late 2024 in many regions of the UK. The report also predicts that real disposable incomes, which measure how much money people have left after paying taxes and essential expenses, will fall by about 17% for low-income households over the five years to 2024.
The report calls for urgent action from the government to boost growth and reduce inequality. It recommends that the government should increase public investment in infrastructure, education, health and social care, as well as support private investment through tax incentives and regulatory reforms. It also suggests that the government should pursue a closer trade relationship with the EU and seek to de-escalate tensions with Russia over Ukraine.
A Word of Caution: The Uncertainties
The report acknowledges that its forecast is subject to a high degree of uncertainty, as there are many factors that could affect the economic outlook in positive or negative ways. Some of these factors include:
- The evolution of the Covid pandemic and its variants, as well as the effectiveness of vaccines and treatments
- The impact of rising inflation and interest rates on consumer spending and business confidence
- The outcome of ongoing negotiations between the UK and the EU on various issues such as financial services, data protection and Northern Ireland
- The possibility of further military escalation or diplomatic resolution in Ukraine
- The potential for new shocks or crises in other parts of the world
The report concludes that while there is no guarantee that things will get better or worse than expected, there is a need for vigilance and preparedness to deal with any challenges or opportunities that may arise.
