London
Britain’s the crises that have afflicted the economy in recent years – the pandemic and inflation – have hit the poorest hardest.
For Britain’s poorest households, the price of economic crises is about 4,000 pounds, or about 4,600 euros per year, according to a recent report by the National Institute of Economic and Social Research (NIESR).
What does the number mean?
“You should earn so much more per year to be able to maintain the old one [kriisejä edeltävän] standard of living”, said the professor Adrian Pabst At the NIESR press conference in London on Wednesday.
Independent of political parties, NIESR specializes in economic research. It was founded in 1938.
Divers pandemic and energy subsidies have softened the effects of crises, but reportedly not enough. The standard of living of the poorest households has collapsed by about a fifth.
One of the reasons for this is that their wages have not increased much, even though the cost of living has increased drastically.
In addition to the poorest, the standard of living has also clearly decreased for those households that have not had a low enough income to receive targeted support.
On the other hand, middle-income and wealthier people have received, for example, energy subsidies along with others, even if they didn’t necessarily need them.
NIESR estimates that a quarter of UK households will have spent all their savings by the end of 2024. Savings are eaten up not only by more expensive food and energy, but also by rising rents.
“If there are no savings, the poorest have to go into debt.”
Britain’s general economic outlook does not create hope for a quick recovery. NIERS predicts that household disposable income will continue to decline.
Britain’s economic growth is crawling just above zero. Recession is likely to be avoided, but it does not comfort households and companies struggling with financial difficulties.
Inflation remains strong. The double-digit numbers will drop to five or six percent, perhaps at the end of this year.
Central banks try to slow down inflation by raising key interest rates. On Thursday, the Bank of England raised its key interest rate by 0.25 percentage points to 4.5 percent.
Britain is of course not alone with financial problems. The big shocks of recent years are the same for everyone: the corona pandemic and Russia’s war of aggression against Ukraine.
Brexit has brought additional problems to Britain.
First of all, Brexit has taken up a lot of decision-makers’ time. This time has been taken away from other problem solving.
Although The EU separation took place legally already in January 2020, lasted through the Brexit transition period until the end of the first year of the pandemic. The concrete consequences of leaving the EU began to be properly felt only in the second year of the pandemic, 2021, when Britain had left the EU customs union and the internal market.
“The problems are linked to each other…Brexit, i.e. the weakening of the trade relationship [EU:n kanssa] made the corona pandemic [Britanniassa] more difficult”, evaluates the director of NIESR, professor Jagjit S. Chadha in London on Wednesday.
Brexit the price is still being paid.
According to NIESR experts, economic recovery after the pandemic has been particularly slow in East and Central England.
Central England’s problems in particular are interpreted as being caused by Brexit: the EU exit brought permanent Brexit friction to the trade between Britain and the EU.
Productivity has also fallen in central England.
All however, there is not just one gloom.
“Unemployment is still at a record low level, and this is good news,” Professor Leaza McSorley said in London on Wednesday.
Britain’s unemployment rate was 3.8 percent in December-February, said the British Statistical Office IS S in April.
In the corresponding period, the employment rate was 75.8 percent.
One one of the problems of the British economy is that there is not enough labor available. The reason is, among other things, that everyone who left the labor market during the pandemic never returned.
The reason can also be found in Brexit.
Brexit ended the free immigration of EU citizens to Britain in search of work. At the same time, companies lost a flexible European labor reserve.
Last in the fall, the British economy was losing its credibility in the eyes of investors.
Started as prime minister at the beginning of September Liz Truss with conservative governments planned giant tax cuts financed with debt money, which spooked the market. The value of government bonds fell, and the Bank of England had to rush to save pension companies.
Truss quickly replaced his finance minister, but soon Truss himself also had to resign. At the end of October, he became prime minister Rishi Sunakwho has followed a significantly more moderate economic line than his predecessor.
Research institute according to the Minister of Finance Jeremy Hunt’s March budget presentation was already “a step in a better direction”.
However, the structures of the British economy need renovation in order to improve productivity. As remedies, the research institute recommends, among other things, subsidies aimed at the poorest households together with wage increases in the public sector.
The aim should also be to increase public investments to around three percent of the gross domestic product. According to Professor Pabst, the investments would accelerate economic growth. Public investments are now a little over two percent of gross domestic product.
The establishment of a 50 billion pound National Development Bank is recommended to guide the investments.
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