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EXPERT COMMENT

The UK faces serious domestic challenges with limited scope to use fiscal interventions to address them, a policy dilemma that will be exacerbated by wider geoeconomic and geopolitical forces.

The latest IMF assessment of the UK economy contained some welcome good news. Compared to its projection only a month ago that the UK would be in recession this year, the IMF is now forecasting modest growth of 0.4 per cent in 2023. The Bank of England has also upgraded the prospect for real GDP growth over the next year by over 1 percentage point.

UK domestic challenges

But it is important to put this good news in perspective. In the short-term, the UK’s economic performance is still expected to be near the bottom among industrialized countries; inflation remains high and persistent; and in the longer term, the UK’s continuing poor productivity performance will remain a drag on growth and living standards.

While some of these short-term problems have been exacerbated by events abroad, such as the war in Ukraine and the resulting hike in energy and food prices, and disruptions to international supply chains during the COVID-19 pandemic, other problems are specific to the UK – and some have been self-inflicted. The rise in the numbers of economically inactive are related to the pandemic itself, but also to the problems facing the NHS which have prevented many sick from accessing effective treatment. And despite continuing increases in net inward migration, many firms report that they are unable to recruit sufficient skilled labour.

Click here to continue reading the full version of this Expert Comment on the Chatham House website.