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Thursday, Jul 31, 2025

Boris Johnson isn't worried about the UK economy. He should be

Boris Johnson isn't worried about the UK economy. He should be

The United Kingdom is suffering from fuel shortages, gaps on supermarket shelves, rising inflation and slowing economic growth. Prime Minister Boris Johnson insists he isn't worried — but should he be?

Johnson has in recent days brushed aside concerns about snarled supply chains and price hikes, saying they are consistent with his plans to force companies to pay higher wages to British workers following Brexit instead of relying on cheaper foreign labor.

To bolster his argument, the prime minister has made bold but narrow claims about the strength of the UK economy, the benefits of wage increases and level of investment. A broader look at the UK economy paints a very different picture.

UK growth


Johnson appeared on the BBC on Sunday, mounting a defense of his economic record as the annual conference of his Conservative Party got underway. The prime minister speaks to his party faithful on Wednesday.

The United Kingdom is the "fastest-growing" of the G7 grouping of the world's most advanced economies, Johnson said as he faced questions about fuel shortages that have now lasted more than a week.

Strictly speaking, the claim may be true. The UK economy is expected to grow 7% in 2021, according to the latest projections from the International Monetary Fund. That equals the US rate of 7%, while outpacing the rest of the G7.

But the UK economy suffered a bigger contraction than any other G7 country last year at 9.8%, which means that growth projections for this year are being made from a lower base. In other words, Britain has a bigger hill to climb than other countries.

The reality is that Britain is taking longer to recover from the pandemic than many other large economies. UK GDP won't return to its pre-Covid-19 level until the first quarter of next year, according to Capital Economics. That's three months later than the eurozone, which includes G7 countries Germany, France and Italy. The US economy regained its previous size in July.

Even worse, the UK recovery is losing pace. Capital Economics expects the British economy to stagnate in September and October, and potentially even contract as the fuel crisis and other shortages harm activity.

"And if all of this isn't enough, unlike in the United States or the eurozone, the threat of an imminent rise in interest rates looms over the economy," said Ruth Gregory, a senior UK economist at Capital Economics, who warned that a rate hike could come as soon as November if the Bank of England judges inflation to be too big of a threat to ignore.

"Clouds are darkening over the outlook for the UK economy. A combination of broadening shortages, the fuel crisis, less fiscal support and the risk of higher interest rates will make it difficult for the UK economy to perform as well as its European peers," said Gregory.

Rising wages and investment


Johnson asserted during his BBC interview that the United Kingdom was seeing growth in wages after "flatlining" for more than 10 years.

"What you're seeing is people on low incomes being paid more," he said. "Wages are going up for the low paid faster than they are for people on high incomes."

Wages are going up. But it's very difficult to analyze the data because the labor market was in turmoil in 2020, when earnings were affected by the pandemic and wage growth turned negative. Wage data should be "interpreted with caution," according to the Office for National Statistics.

Paul Johnson, director of the Institute for Fiscal Studies, said on Monday that there was little evidence of change to the poor wage growth linked to low productivity that plagued the last decade.

"Whilst underlying wages probably are rising by about 4% at the moment, don't forget that inflation is above 3%. So we're not at the moment seeing significant wage growth and we only want to see it if it is associated with higher skills, higher investment and higher productivity, " he told BBC Radio on Monday.

Tony Danker, director general of the Confederation of British Industry (CBI) said on Tuesday that from the government wish list of higher wages, skills, investment and productivity, "the challenge we have is that only the first one's rising. And that's why people are worried about inflation."

Higher wages without the accompanying increase in productivity would raise businesses costs. Those hikes would likely be passed on to consumers in the form of higher prices.

"What I hope we'll hear more of from the finance minister in a few weeks' time in the budget is how to get the high skills, high investment, high productivity that make high wages a good thing, rather than something that's causing economists and the finance minister some concern," he told BBC Radio.

The big picture


Johnson has so far been reluctant to forcefully address labor shortages, insisting they are part of the "stresses and strains" of a country transitioning towards a highly productive economy. He said that "pulling the big lever marked 'uncontrolled immigration'" is not the answer.

But the government does need a plan to address the huge economic aftershocks arising from the pandemic and Brexit.

Some economists have compared current economic conditions to the 1970s, when fuel shortages, rising prices and slower growth contributed to an extended malaise. But Neil Shearing, group chief economist at Capital Economics, argues the better comparison is to the period after World War II.

In that case, huge numbers of workers flooded the jobs market but didn't have the right skills, resulting in labor shortages. The price of energy skyrocketed, and supply shortages fueled inflation.

"All of this echoes the situation facing the UK and other advanced economies today — and appears ominous for those who worry we are now facing a return to much higher rates of inflation," said Shearing.

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