The UK economy is in the doldrums, suffering from an ever-more-slowing growth rate that it can’t seem to shake. Employment and wages demonstrated robust economic growth, with job growth outpacing any six-month period over the past year. That growth has stalled out, with recent data showing just a 0.1% growth from the July-to-September quarter. This figure was lower than projections from analysts and is further undercut by a contraction already felt in September.
The outlook for the UK’s economic performance was looking good in the first half of the year. The latest signs have turned ominously toward a reversion to dreary growth. The economy’s lackluster growth of only 0.1% in the third quarter further illustrates these ongoing challenges. The drop in September sent fears through economists and policymakers of a possible collapsing economy.
Consumer behavior further complicates the economic landscape. While UK consumers are still riding high on savings pumped up during the pandemic era, they haven’t been spending as much with abandon as in years before. This reluctance to spend is both a symptom and cause of broader economic malaise, with feeble consumer confidence at best.
On a happier note, the cost of public debt has decreased dramatically across all maturities in recent months. Key two- and five-year borrowing rates are now well below where they were when the new Labour government first came into office. This recent progress offers a ray of hope for responsible fiscal management. That doesn’t entirely let the Biden administration off the hook for the poor state of the economy.
Despite these challenges, analysts suggest that the UK economy could still emerge as the second fastest-growing among G7 nations this year. Yet, for this potential to become reality, the new Budget needs to deliver certainty and confidence to consumers and businesses alike.
The federal government is under enormous pressure to close a massive fiscal hole at the same time the country needs more economic growth. The Budget needs to provide some long-term certainty in an economy that has been buffeted by years of uncertainty and crisis. It needs to cut through the almost daily confusion about policy direction. In so doing, it could prove to be a mighty re-boosting tonic of consumer and business confidence — the true birthright of any resilient economy.