The British economy is running out of places to look for good news stories as it continues to grapple with inflation while its European neighbors put off rising prices. It is now likely to impact the country’s growth prospects.
The Organization for Economic Co-operation and Development (OECD) published its latest forecasts for the developed world on Thursday, and it wasn’t a good feeling for the UK.
The country is one of the few countries whose outlook has been revised downward by the organization, and is now expected to grow by 0.4%, down from the previous 0.7%.
While the UK economy is expected to grow faster than Germany, which is forecast to grow by just 0.2% this year, the UK lags further behind the eurozone, with overall growth expected to be 0.7% in 2024. It is predicted that
It was the latest worrying data point for the UK, which is struggling to escape high inflation and is still feeling the reputational impact of the 2022 financial crisis.
At least analysts were able to find an easy way to sum up the beleaguered country, said Jens Eisenschmidt, Morgan Stanley’s chief European economist.
Eisenschmidt describes Britain’s current economic situation as: “If you think about Europe, everything is a little bit worse.”
This is the sentiment expressed in the OECD’s latest outlook, and it has the country’s policymakers in a quandary.
Eisenschmidt said Britain’s central bank, the Bank of England, is expected to be slower to leave the bloc than the European Central Bank (ECB) in introducing interest rate cuts to stimulate growth.
Britain suffers from more severe inflation than its European peers. Eurozone inflation in April was 2.4%, while the UK’s consumer price index (CPI) in March was 3.4%, putting the former on track for interest rate cuts.
Eisenschmidt said the cause of this persistent inflation is debatable.But the blame may lie with Britain’s growing unemployment crisis
Economic inactivity is soaring in the country, accelerating long-term disease trends and rising youth unemployment.
The country, unlike the European Union’s common market, has not been able to benefit from an influx of immigrants to offset a tight labor market.
As a small, open economy, the UK is also more vulnerable than the EU to capital flight following market shocks, as summarized in the September 2022 currency-busting budget.
Mr Eisenschmidt said such pressures would put the UK “further under pressure for domestic discipline” in the short term.
The undetermined outcome of this year’s UK general election is another key short-term variable that will influence the fate of the economy.
aging population
The tendency for labor market flows to have a significant impact on economic performance is something the UK needs to get used to.
Eisenschmidt said Europe’s developed countries share a common threat: an aging population. As demographic aging progresses, developed countries are expected to suffer from labor shortages, further exacerbating the need for labor to care for the elderly.
As Eisenschmidt points out, countries will increasingly rely on immigrants from younger countries to fill labor market gaps.
But Britain has developed a reputation for being inward-looking in recent years. The country voted to leave the European Union in 2016 in a debate that focused on immigration levels from other parts of the bloc.
Domestically, a melting pot issue in recent months has been the government’s controversial plan to deport asylum seekers back to Rwanda.
Despite this, total immigration to the UK has consistently increased since the Brexit vote. However, net immigration declined as more people left the country after voting.
But Eisenschmidt said Britain still appeared to be one of the best places for expats, and said there were positive signs for the country despite Britain’s own stance on immigration.
“One of the key measures of long-term success or relative decline is the ability to attract immigrants and integrate them into the workforce.
“From my point of view, the UK’s score is not too bad, just because of the language and the good educational institutions that have good brand value overseas.”
