UK Economy crisis: Here's why UK economy is falling.

UK economy crisis

                  United Kingdom is currently facing the worst economic crisis as the economic recession breaks all the previous records. With the inflation in UK touching the sky and the labour market struggling to recover from the pandemic, the situation has got even worse for the government. United Kingdom is facing a deeper and more prolonged recession than any other nation in the G7. In this article, we will look at the reasons why UK's economy is struggling and why it is more vulnerable to the on going Russia-Ukraine war and the aftershocks of the COVID pandemic than its G7 mates.

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Effects of Ukraine war on UK's economy:

               The sharp rise in gas and oil prices as a result of war has affected the UK a lot. Although the UK's energy demand has decreased by 22% since 2000, but the declining gas and oil output of North Sea has made UK more dependent on 'other' countries to fulfill its energy needs. 

               Russia accounts for 6% of UK's gas imports and 8% of its oil imports while Norway and US account for the rest. From these figures, it is clear that UK does not have significant trade links with Russia but the only problem is that the UK imports its oil and gas at market prices, and these market prices have been increasing since the start of the war. This is because Russia is a major producer in global energy markets, accounting for 17% of global gas production. Thus, we can say the Russia-Ukraine war is indirectly affecting the United Kingdom.

The lingering effects of pandemic:

                UK's economy is still struggling to shake off the effects of COVID pandemic. Last year, UK was the only G7 country with an economy smaller than its post-pandemic level. According to ONS report released in September, high interest rates and inflation dealt a much bigger blow to UK's economic growth than the other developed countries.

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                   According to experts, UK was affected more badly by the pandemic than the other countries because of its COVID policies. UK imposed the lockdown with much delay and in the end, it faced the most severe economic recession among the G7.  

Political Instability:

                   Last year, political instability in United Kingdom reached new levels as the country witnessed three prime ministers in two months. As expected, it caused more harm to already fragile economy. In October, the Economic Confidence Index (which measures the business leader optimism) fell to "negative 60" as the result of political instability in the country.

Other Factors:

                  Other major problems the country is facing at the moment are shrinking workforce and the declining trade relations with the European Union. A record number of workers dropped out over the past few years, primarily due to mental health issues and long-term illnesses. The public services have also been affected as the social care workforce fell by 50,000 people last year as a result of illnesses and wage disputes.

                  Followed by the Brexit (the decision of UK to leave the European Union on 31 January 2020), the trade relations between the United Kingdom and the European Union have declined. Also, Brexit caused a 5.5% decrease in UK Economy.

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Conclusion:

                  Taking in consideration the current economic situation of UK, and the global economic recession, it is quite clear that UK still has to face many challenges. The Financial Times polled over a 100 UK-based economists on the current economic outlook of the country as compared to the other G7 countries. A clear majority of the economists believed the UK was in far more severe economic recession that will take a long time to recover. However, some believe that the economy will rebound next year as the IMF has said that the global economic recession might be coming to an end later this year. That was it for today's article. We hope you liked it. If you liked our article, make sure you share it and keep visiting us. You can find out more of these interesting articles and latest global news by clicking here. Thanks.