As the pandemic draws to a hopeful end, the British economy may come out of it only to face another problem – a long, damaging stretch of inertia. The National Institute of Economic and Social Research (NIESR) released a report that painted a rather grim picture of Britain’s economic future. NIESR predicted that higher consumer prices coupled with an ever-increasing income gap between regions would lead to financial hardship in the UK.
The economy’s performance and its effects on poorer households demonstrate that Prime Minister Boris Johnson’s policies are unlikely to ‘level up’ according to his projected timeline. Before regional prosperity disparity is cleared up, there is still a long way to go. The same goes for the boosting of wages to match price increases.
While earnings lag too far behind inflation to help households contend effectively with rising inflation, the regional issue is particularly compelling in times like these. Regions like the North of England and Northern Ireland house some of the poorest families in the nation. If the post-COVID recovery season yields any fruitful gains, these people are least likely to benefit from them.
Welfare recipients are equally unlikely to fare much better. The planned £20 decrease in Universal Credit will have staggering knock-on effects for the unemployed who rely on this benefit. Considerably difficult times lie ahead for welfare dependents; they will find it hard to meet their financial obligations. According to the Joseph Rowntree Foundation, anyone earning less than £70 would not even be able to pay for necessary groceries.
Individual household spending has a crucial relationship with the well-being of the economy. If household finances come under great strain, the economy loses out on one of its substantial sources of growth. In its report, NIESR also predicted that economic growth will slow down over the next two years.
While economic growth is expected to slow down, inflation is likely to speed up. In October alone, the increase in food prices reached a 14-month high. Consumers bought more crisps and soft drinks, for instance, during this period than in October last year.
The food price hike also shows the effects of the pandemic on purchasing patterns. As lockdowns were eased, consumers felt freer to make up for lost holidays. For instance, to celebrate Halloween, people bought more pumpkins and trick-or-treating candy than last year.
Additionally, British households are being incredibly proactive about their Christmas preparations. Grocery market analysts Kantar have observed that 6.3 million Britons bought Christmas pudding and mince pies in October. Britons are not willing to let another Christmas go by without celebration. Even branding and promotion have been affected, with John Lewis releasing their annual advert earlier than usual.
Another bright spot amidst this post-pandemic preparation era is that this flurry of consumer spending has driven retail sales to a healthy recovery. Retail sales have put the Pound (GBP) on an upward trajectory over the last few days. Anyone interested in investment should put these upwardly mobile pounds in a Stocks and Shares ISA for inflation protection.
Though the British populace does all it can to help the economy by increasing spending and making good use of investment options, it might not be enough to prevent the worsening of economic problems inevitably caused by Brexit.
According to NIESR, one effect of the 2016 referendum has been to cause the UK to change its importation patterns. Instead of importing goods from the European Union, goods are now imported from the rest of the world. This increases the strain on an already heavily stressed supply chain.
NIESR director Jagjit Chadha observes that Brexit has not only worsened supply chain problems, but the 2016 referendum has also had other effects. Some negative consequences are a diminished skilled labour pool and decreased investments that could help policymakers achieve economic growth. These lead quite naturally to challenges in Britain’s traded sector.
The combination of welfare cuts and higher inflation rates will undoubtedly affect poorer families most. At its current growth rate, the economy is not looking like it will fare much better either. The increased regional differences in income also do not bode well for an economy desirous of significant growth in the next decade. Add to that the Bank of England’s prediction that inflation could rise by more than 5% by early 2022, and the situation looks even bleaker.
Nonetheless, Chadha is optimistic about the nation’s prospects. Timely and disciplined state interventions can do a great deal of good for the economy. Exercising these principles will help Britain achieve its dreams of an economy populated with highly-skilled, well-paid labourers. There are indeed reasons for hope, and the Britons should hold out for them.