Britain’s economy is running out of places to search for excellent news as its economy continues to struggle with inflation while its European neighbors keep rising prices within the background. Now it’s prone to have an effect on the country’s growth prospects.
The Organization for Economic Co-operation and Development (OECD) released its latest forecast for developed countries on Thursday, which didn’t make nice reading for the UK
The country was one in every of the few countries whose outlook was downgraded by the organization and is now expected to grow at 0.4%, down from 0.7% previously.
Although the UK economy remains to be expected to grow faster than Germany’s, which is able to grow by just 0.2% this 12 months, the UK is losing more ground to the Eurozone overall in 2024 growth of 0.7% is forecast.
This is the most recent worrying data for the UK, which is struggling to shake off high inflation and remains to be feeling the reputational impact of the 2022 budget crisis.
According to Jens Eisenschmidt, chief European economist at Morgan Stanley, this has at the least led analysts to search out a simple approach to summarize the beleaguered country.
“Think of Europe, but everything is a little worse,” says Eisenschmidt, describing the present economic situation in Great Britain.
It’s a sense that is echoed within the OECD’s latest outlook, and one which’s putting policymakers within the country in a bind.
Britain’s central bank, the Bank of England, is predicted to be slower than the European Central Bank (ECB) to come back out of the bloc in introducing rate of interest cuts to spice up growth, Eisenschmidt says.
The UK suffers from higher inflation than its European peers. In April, euro zone prices rose 2.4%, while the UK consumer price index was 3.4% in March, putting the country on a faster path to rate of interest cuts.
Eisenschmidt said the reason behind this persistent inflation is up for debate. However, the blame could lie with a growing unemployment crisis within the UK
Economic inactivity has increased rapidly within the country, accelerated by increasing rates of long-term illness and youth unemployment.
Unlike the European Union’s Common Market, the country has not been capable of profit from migration flows to offset a good labor market.
As a small open economy, the UK has also been more vulnerable to capital flight following market shocks than the EU, because the September 2022 currency-heavy budget highlights.
Eisenschmidt said these pressures had left the UK “more exposed to the need for fiscal discipline” within the short term.
The end result of this 12 months’s UK general election, the date of which remains to be to be determined, is one other vital short-term variable affecting the performance of the economy.
Aging populations
The UK should get used to the trend of labor market flows having an outsized impact on economic performance.
Eisenschmidt said developed European nations shared the specter of an aging population. As populations age, developed economies are expected to face labor shortages, compounded by the necessity for employees to take care of older residents.
Eisenschmidt points out that countries will increasingly depend on immigration from younger countries to fill gaps within the labor market.
However, lately the UK has developed a fame for being inward-looking. The country voted to depart the European Union in 2016 in a debate that focused heavily on immigration rates from other EU countries.
Domestically, the federal government’s controversial plan to deport asylum seekers to Rwanda has been a crucible in recent months.
Nevertheless, overall immigration to the UK has continued to rise because the UK’s Brexit vote. However, net immigration fell as more people left the country after the vote.
However, one shiny spot for the country is that despite its own stance on immigration, the UK still appears to be among the finest places for foreign residents, says Eisenschmidt.
“An vital measure of long-term success or relative decline is your ability to draw migrants and integrate them into the workforce.
“I would say that from my perspective the UK doesn’t do too badly here, simply because of the language and the great educational institutions that have great brand value abroad.”
