London Daily

Focus on the big picture.
Thursday, Apr 02, 2026

What now for Britain's economy – a new direction, or business as usual?

What now for Britain's economy – a new direction, or business as usual?

The coronavirus crisis provides an opportunity to stop two centuries of decline. But that’s going to take a lot of courage
The day the World Health Organization declared Covid-19 a global pandemic was also the occasion of Rishi Sunak’s budget. Announcing an extra £12bn to fight the virus, Britain’s newly appointed chancellor said the measures were “temporary, timely and targeted”.

That was less than six months ago, but it now feels like a long time. Within days of the budget, Sunak’s three-Ts approach became redundant. The economy was in a deep freeze, and the country had gone into full lockdown.

To give the chancellor his due, Sunak then acted fast and big, putting in place schemes that would help households and businesses through the crisis. When the shortcomings of hurriedly assembled policies were pointed out, he was happy to do some running repairs, regardless of the cost. And over the past six months, the bill has been getting bigger and bigger.

At the time of the budget, Sunak expected to borrow around £60bn for the whole of the 2020-21 financial year. In the first four months of 2020, the government has run a budget deficit of £150bn.

This emergency action was only ever going to be part of the story. As you would expect from a country that found itself unexpectedly under attack, the response had to come in phases: first ensuring survival, then winning the war, then finally putting right the problems that had left the nation vulnerable in the first place.

Phase one is over, and has been for some time. Although the economy contracted by 20% in the second quarter of the year, the collapse was concentrated in a relatively brief period between late March and early May. Since then, the economy has been growing again and is likely to have expanded by at least 15% in the current quarter.

Phase two is going to be longer and trickier – in part because Sunak’s decision to make businesses pay a portion of their wage bill, irrespective of whether they are trading or not, and to phase out the furlough scheme entirely by the end of October, are classic unforced errors.

Having shown commendable flexibility when putting together his rescue package, Sunak has been hardline in his insistence that there must be an end to the scheme in less than two months, come what may. This will cost jobs, as the chancellor knows full well, because at the last count one in eight workers – roughly 3 million people – were still being furloughed.

Sunak’s response has been twofold. Firstly, he has announced a £2bn kickstart job creation programme for 16- to 24-year-olds. The Federation of Small Businesses says this will not be nearly enough to prevent a “lost generation” of young people from the Covid-19 recession, which sadly would appear to be all too true. There has not been a tougher climate for school-leavers and graduates in decades.

Secondly, the chancellor has sought to get the economy running hot through time-limited cuts in VAT and stamp duty, and his eat out to help out scheme. This is a tried and tested formula: get people into the shops and bars, boost demand for houses, and stimulate a feelgood factor.

In the short-term, this strategy might be regarded as a success. Mortgage approvals more than doubled in July. The Nationwide building society reported the biggest monthly increase in house prices in 16 years in August. The Monday-to-Wednesday takings for the restaurants that have taken part in eat out to help out are well up on last year.

But even if (and it’s a big if) these measures have a lasting effect, they do nothing to address longer-term structural problems with the economy. In fact, they threaten to make these worse by increasing the economy’s dependency on import-driven consumption and an overheated property market.

A potted modern economic history of Britain goes like this. The country industrialises in the 18th century and becomes top dog in the decades after the Napoleonic wars. It’s already suffering from relative decline by the second half of the 19th century.

It never really addresses problems of 20th-century industrial decay, because of smug complacency fostered by victories in two world wars. It has a touching belief in quick fixes to address poor skills, weak investment, rotten management, low levels of innovation and a short-termist financial system.

All of this has led to flatlining productivity and an abundance of low-paid, insecure jobs. Britain’s failure to move with the times is summed up in one fact: the market capitalisation of one US tech giant – Apple – this week exceeded that of the 100 biggest quoted companies on the London Stock Exchange.

The Covid-19 crisis revealed that Britain was ill-prepared for a pandemic. It was deficient in both human and physical capital. It made a vague pass at having strategies for energy, industry and skills, but no more than that.

Once the scale of the crisis became obvious, the Treasury and Bank of England did as much as they could to mitigate the impact. Even so, the past six months have already left scars: even weaker productivity, a loss of schooling, and zombie companies kept alive by low interest rates and Treasury-backed loans.

The country is now at a fork in the road. One way leads to the place on the map known as “business as usual”. This involves talking a lot about the need for fundamental change and the importance of doing better next time, but in reality means carrying on as before.

The other route offers potentially greater rewards, but is far tougher because it requires behavioural change on the part of government, companies and individuals. It means a national business plan, ambition, hard graft and tons more patience than has been shown in the past. Don’t hold your breath.

Larry Elliott is the Guardian’s economics editor
Newsletter

Related Articles

0:00
0:00
Close
King Charles III Invited to Address Joint Session of U.S. Congress in Rare Diplomatic Honor
Debate Grows Over Whether Expanded North Sea Drilling Can Reduce UK Energy Bills
UK Faces Heightened Risk of Jet Fuel Shortages, Airline Chief Warns
UK Ends Police Investigations into Lawful Social Media Posts After Review Finds Overreach
Abramovich Moves to Establish Charity for Frozen Chelsea Sale Proceeds Amid UK Dispute
Starmer Reaffirms NATO Commitment While Responding to Trump’s Strategic Critique
UK Aid Reductions Raise Fears of Severe Human Impact Across Parts of Africa
UK Signals Renewed Push for EU Cooperation as Iran Conflict Reshapes Security Landscape
Bank of England Signals Caution as Bailey Advises Markets Against Expecting Rate Hikes
UK to Convene Global Coalition to Restore Shipping Through Strait of Hormuz
Trump Signals Possible NATO Reassessment, Emphasizes Stronger U.S. Strategic Autonomy
Australia Joins British-Led Efforts to Reopen Strait of Hormuz Amid Escalating Tensions
King Charles Plans US State Visit as UK Strengthens Ties with Trump Leadership
UK Regulator Launches Investigation Into Microsoft’s Business Software Practices
Kanye West Set for High-Profile Return to UK Stage at Wireless Festival
Trump Presses Europe to Strengthen Commitment as Iran Conflict Escalates
UK to Deploy Additional Troops to Middle East Amid Rising Regional Tensions
UK Authorities Face Claims of Heavy-Handed Measures in Monitoring Released Pro-Palestine Activists
Trump Calls on UK to Secure Its Own Energy as Iran Conflict Intensifies
Nigel Farage Declines Invitation to UK Conservative Conference Led by Liz Truss
Trump Warns Allies to Take Responsibility as Rift Deepens with UK and France Over Iran Conflict
How Britain’s Prime Minister Controls U.S. Bomber Access in Escalating Iran Conflict
Trump Urges Allies to Secure Their Own Oil Supplies as Hormuz Crisis Disrupts Global Energy
Russia Expels British Diplomat as UK Pushes Back Against Pressure
White House App Faces Scrutiny After Claims of Continuous User Location Tracking
BBC Faces Scrutiny Over Allegations of Paid Content Linked to Saudi Arabia
UK-France Coastal Patrol Agreement Nears Breakdown Amid Migration Pressures
UK Police Detain Pro-Palestine Activist Again Weeks After Bail Release
FTSE 100 Advances as Energy and Mining Shares Gain Amid Middle East Tensions
Eli Lilly Seeks UK Pricing Deal to Unlock Renewed Pharmaceutical Investment
Three Arrested in UK After Massive Cocaine Haul Discovered Hidden in Banana Shipment
UK Fuel Prices Poised for Further Surge Amid Global Energy Pressures
Apple Subsidiary Penalized by UK Authorities for Breach of Moscow Sanctions
Western Allies Intensify Coordinated Sanctions Strategy Against Russia
UK Lawmakers Face Criticism Over Renewed Push for Social Media Restrictions
Starmer Signals UK Crackdown on Addictive Social Media Features
Rising Costs Push One in Five UK Hospitality Businesses to the Brink of Closure
Man Arrested on Suspicion of Attempted Murder After Car Strikes Pedestrians in UK, Injuring Seven
Escalating Conflict Involving Iran Tightens Fiscal Pressures and Highlights UK Economic Vulnerabilities
UK Moves to Confront Russian ‘Shadow Fleet’ Operating in Its Waters
UK Housing Divide Deepens as Older Owners Hold Wealth While Under-30s Face Mounting Barriers
London Demonstration Calls on UK to Recognize Iranian Opposition’s Provisional Government
UK Green Party Vote on ‘Zionism is Racism’ Motion Collapses Amid Internal Disputes and Technical Failures
SNL UK Ignites Debate with Sharp Royal Satire Targeting Prince Andrew and Prince William
EU Proposes ‘Emergency Brake’ to Resolve Deadlock in UK Youth Mobility Talks
Thousands Rally in London to Oppose Rise of Far-Right Movements
Hong Kong Official Rejects Allegations of Surveillance Orders Targeting UK-Based Dissidents
PayPal Expands Cryptocurrency Services to Allow UK Users to Buy and Sell Bitcoin
UK Minister Challenges Reform Party’s ‘Pro-Family’ Agenda as Debate Intensifies
Concerns Grow Over Meningitis Risk Among UK Students Amid Warning Signs of New Outbreaks
×