How did the UK economy slump?

British Chancellor Rishi Sunak said last week that our economy had indeed reached a turning point, as he introduced his party's election manifesto on the back of recent data showing the UK economy emerged from recession stronger than expected earlier this year. This means that inflation has slowed significantly.

Justifying that optimism, data released on Wednesday showed consumer prices rose 2% in May from a year ago, reaching the Bank of England target for the first time since 2021. Sunak begins his term as chancellor.

Many economists say several things need to be done to change Britain's economic course after more than a decade of slow economic growth, chronic low productivity, high taxes, poor public services and an underfunded and overfunded National Health Service. We argue that we need good economic indicators.

Opinion polls have shown there is a desire to oust the ruling Conservative Party from Downing Street at next month's general election for the first time in 14 years. But opposition Labor lawmakers have already warned that if they win, they will inherit a unstable economy with little room for drastic change.

How did Britain get here?

focus on austerity

When the Conservatives came to power in 2010, the country was going through a huge financial crisis. Debt grew higher, and the country's budget deficit reached its highest post-war level.

David Cameron, then Prime Minister, and his counterpart, George Osborne, placed greater emphasis on reducing government spending rather than raising taxes. What followed were years of austerity, with government department budgets drastically cut.

Spending on services such as courts, libraries, and public transportation has been cut, but investment budgets have also been cut, delaying or halting maintenance and construction of schools, hospitals, and prisons. Benefits for the unemployed and low-income earners have been significantly cut.

Anna Valero, an economist at the London School of Economics, said Britain had implemented fairly stringent austerity measures. It is arguably too deep, hampering the recovery and hampering the extent to which our economy can invest, she added.

legacy of stagnation

Many economists have defined the last 14 years as stagnant productivity growth in the UK. Economic output per hour of labor has changed little. This is a major factor in determining standard of living. As productivity increases, wages also rise. In the UK, inflation-adjusted wages are roughly the same as they were at the end of 2007.

Diane Coyle, a professor of public policy at the University of Cambridge, said we need to recognize that this is a pretty deep hole the economy has fallen into. Productivity growth is low in many countries. We got nothing.

Lost wage growth over the past 15 years has cost the average worker £10,700 (about $13,600) per year, according to research firm Resolution Foundation. The British middle class was estimated to be 20% poorer than Germany and 9% poorer than France.

The lasting effects of Brexit

The economic impact of Britain's departure from the European Union is still unfolding, but some of the costs of the decision are already clear. Years of policy uncertainty under Theresa May's government following the referendum have halted business investment. Then a new agreement with the European Union erected trade barriers across most industries, making it harder and more expensive for everyone from Scottish fishermen to London bankers.

Instead of investing in infrastructure, innovation and technology, the British government has long been distracted by Brexit, Mr Valero said. If everyone is interested in how to actually do Brexit, how to make it work and all the political consequences of that, people become less interested in focusing on these long-term issues, she said.

broken england

A long period of low investment and pressure on public spending has left many feeling that Britain is broken.

Many public services are on the brink of collapse despite the biggest tax burden in 70 years. There are more than seven million cases on the NHS waiting list, social care is severely underfunded and understaffed, and spending per pupil is the same as it was 14 years ago. Although unemployment is low, the number of people leaving the workforce due to long-term illness has risen sharply.

The list of these is long and varied. Court backlogs mean long waits for criminal trials. There is a shortage of affordable housing and rents are at record highs. Onerous regulations and local authority powers are hindering the construction of homes, as well as green energy infrastructure, data centers and research labs. The number of people using food banks has doubled in the past five years. Strikes, labor shortages and poor maintenance have crippled public transport. And there are constant complaints about potholes all over the country.

Leeds Truss Experiment

The confusion was most evident during the 49-day premiership of Liz Truss. Liz Truss tried to change Britain's economic policy, but her investors rejected her ideas, causing her to make a U-turn and eventually resign.

Ms Truss had the right diagnosis of the need for faster long-term economic growth, but the wrong cure for Britain's problems. She had hoped to strengthen the economy by cutting taxes and borrowing heavily to do so, soon after spending heavily to shore up households through the economic shock of the pandemic and energy crisis following Russia's invasion of Ukraine.

She shattered the Conservative Party's reputation for good financial management. Since then, the policies of the two major political parties have focused on self-restraint.

Both parties promised not to increase the UK's three major tax rates – personal income tax, national insurance, and value-added tax (VAT), a type of sales tax. However, many people will still pay higher taxes as their wages rise, putting them in higher tax brackets, which will remain frozen for several years.

What are your future plans?

Many economists say the tax promises will be difficult to fulfill. There are particularly strong calls to spend more on public services to deliver on promises to increase military spending and improve the NHS, and parts of government such as the courts cannot withstand further cuts. Sticking to our promise to reduce debt will require us to raise taxes if we can no longer cut spending.

But the dire situation facing Britain's next leaders could be eased if economic growth continues to increase appropriately. To date, Britain's economic growth has benefited from population growth, particularly due to migration. The size of the economy per capita is the same as it was at the time of the last election in 2019.

In fact, improving productivity is important if you are considering sustainable growth, Mr. Valero said. This would also lead to higher wages and better standards of living, which would require greater investment in infrastructure, education and innovation, and a planning system that would enable that investment, she said.

In the meantime, voters will decide which growth party they prefer on July 4th.

Sources 1/ https://Google.com/ 2/ https://www.nytimes.com/2024/06/19/business/britain-economy-inflation.html The mention sources can contact us to remove/changing this article

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