London Daily

Focus on the big picture.
Friday, Aug 14, 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
UK Condemns Houthi Actions and Warns of Red Sea Threat to Global Trade
UK and Solomon Islands Open Wildlife Photography Exhibition in Honiara
UK Small Businesses Face Continued Cash Flow and Tax Pressures
Greatham Marsh Restoration Restores Tidal Wetland in Hartlepool After More Than 200 Years
UK Health Regulator Urges University Students to Check Meningitis and Measles Vaccination Status
Mining Remediation Authority Completes Major Ground Stabilization Works in Scottish Community
UK Food Crime Investigators Seize 33 Tonnes of Illegal Food in Multi-Agency Operation
Technical Qualification Uptake Hits Record High as Advanced Mathematics Results Improve
UK Summer Temperatures on Course to Challenge Long-Standing Records, Met Office Says
UK Farmers Bring Forward Cereal Harvests as Drought Threatens Yields
Wildfires Surge Across England and Wales as Fire Chiefs Report Record July
UK Nurses Warn of Heat Risks as Hospital Staff Struggle With Extreme Temperatures
Southern Water Seeks Drought Order for Hampshire and Isle of Wight Amid Water Shortages
UK Heatwave Pushes West London Temperature to 38.1 Degrees as Health Alerts Continue
UK Economy Grows 0.4% in Second Quarter Despite Global Uncertainty
China’s Kimi Launches AI-Focused Credit Card With Agricultural Bank of China and American Express
UK Residents Gather to Watch Rare Partial Solar Eclipse
Reform UK Deputy Leader Richard Tice Faces Criticism Over Legal Threat Against Guardian Journalist
Michael Forsyth Elected Speaker of the House of Lords
Cambridge Researchers Launch £20 Million Human Organoid Drug Testing Programme
Heathrow Loses European Passenger Traffic Lead to Istanbul Airport
Households Near New UK Electricity Pylons to Receive £250 Annual Energy Bill Discount
UK Government Estimates Zero-Hours Contract Ban Could Cost Employers Up to £3 Billion a Year
Robert Jenrick Leaves Conservatives for Reform UK in Major Parliamentary Defection
UK Police Chiefs Urge Government to Block Early Release of Andrew Harper Killers
UK Government Holds Emergency Cobra Meeting as Drought and Heatwave Raise Wildfire Risks
Former Labour Adviser Arrested on Suspicion of Spying for China Held Privileged Access as Top Party Donor
Turkish Parliament Passes Landmark Bill Granting Conditional Amnesty to Disarmed PKK Members
Donald Trump Warns FIFA Against Ousting Gianni Infantino Amid Revolt by Global Football Leaders
Jeff Bezos Joins Investor Group Closing In on $6 Billion Liverpool FC Stake
Police Conduct Cross-Border Raids Against Northern England Drug Network
Nicola Sturgeon Protested at Edinburgh Festival Fringe Event
Major UK Retail Chain Enters Administration With One Hundred Fifty-Four Stores Set to Close
Heathrow Renews Call for Runway Expansion After Losing Europe’s Busiest Airport Ranking
Government Condemns One Million Pound Thames Water Executive Bonus Amid Drought
NHS England Says More Than One Hundred Thousand Hepatitis C Patients Have Been Cured
UK Foreign Secretary Ed Miliband Calls for End to West Bank Settler Violence
UK Prepares for Deepest Partial Solar Eclipse Since Nineteen Ninety-Nine
UK Heatwave Triggers Amber Health Alerts as Economic Losses Reach Four Point Four Billion Pounds
UK Offers Electricity Bill Discounts to Communities Hosting New Power Infrastructure
Bank of England Expected to Hold Interest Rates at Three Point Seven Five Percent
UK Government Moves to Ban Subscription Traps and Misleading Retail Discounts
Andy Burnham Gives Councils New Powers to Block Betting and Vape Shops
UK Councils to Receive Sweeping Planning Powers to Ban New Vape and Betting Shops
Nicola Sturgeon Says She Has No Contact With Estranged Husband After SNP Embezzlement Case
Police Arrest Two Men After Aberdeenshire Defense Technology Office Break-In
Greater Manchester Councils Gain Powers to Restrict New Vape and Betting Shops
Coroner Finds Treasury Workplace Failures Contributed to Personal Assistant’s Suicide
English and Welsh Courts Ban Meta Smart Glasses Over Recording and Privacy Risks
Strait of Hormuz Disruption Could Double UK Inflation and Trigger Recession, Forecasters Warn
×