London Daily

Focus on the big picture.
Thursday, Mar 19, 2026

Why is the UK economy suffering more than other countries?

Why is the UK economy suffering more than other countries?

Up until now it has been difficult to pick out much difference between the UK's economic numbers and those across Europe and the world.

The size of the common global economic shocks from the pandemic and from Russia's invasion of Ukraine has been the overwhelming driver of high inflation and slower growth for most European countries.

But in recent days, the Bank of England governor, Andrew Bailey, has warned inflation is set to be higher for longer here in the UK, and growth in the economy weaker too.

These gloomy forecasts echoed those made by the International Monetary Fund and the Organisation for Economic Co-operation and Development, which has 38 member countries.

On Wednesday, Mr Bailey told a European Central Bank forum that "the UK economy is probably weakening rather earlier and somewhat more than others".

He said: "I think that's been somewhat evident now for a few months."

And on inflation he said that as things stand, he would expect more persistence in the headline rate because of the UK's energy price cap system. This suppressed inflation earlier in the year but raised it later on.

Retailers too have said they have started to expect different outcomes for the UK versus the rest of the Europe. The boss of the owner of Boots, Stefano Pessina, said he suspected the UK "will have a big recession, probably bigger than other European countries".

Last month Pepco, which owns Poundland, said in its results that in the UK customers were scaling back even on essential purchases. Whereas elsewhere in Europe, where wage rises were making up for price rises, this was not the case. Some measures of household consumer confidence are hitting record lows in the UK.

What is driving this? On inflation Mr Bailey pointed to the structure of the price cap affecting the timing of the peaks. But that would affect more the timing of the peak rather than its height.

Sterling has fallen markedly against the dollar over the past year, adding to inflationary pressure for imported fuel and energy. Although the figures are volatile, the key measure of UK trade performance, the current account, reached its worst levels in record in the first quarter.

As the Bank pointed out in its minutes for its June meeting when it raised interest rates, measures of core goods inflation (stripping out volatile measures such as energy and food) in the UK are higher than the US, and markedly higher than the eurozone.

Brexit factor at play


The obvious question posed to Mr Bailey was about a Brexit factor here. Economists predicted that Brexit would make the trade off between inflation and growth more difficult, both because of trade barriers and labour shortages.

If forecasts of UK underperformance turn out to be true, then this would be consistent with a Brexit factor at play, making inflation more stubborn than elsewhere, and perhaps requiring interest rates to be hiked higher.

A smaller pool of workers should mean the UK labour market is now less flexible. The British Chambers of Commerce yesterday implored the government to review urgently its shortage occupation list, as hotels and restaurants turned away clients amid staff shortages.

Post-pandemic challenges


Another mechanism identified by policymakers is that within the UK firms see less competition from Europe, and are increasing margins and therefore prices. On the actual numbers so far, as the governor said, it is difficult to be definitive. The post-pandemic supply chain challenges are difficult to disentangle from post Brexit ones, he said.

Also it is far from certain that these forecasts will come to pass. The German economy is very sensitive to any shortage of energy amid tensions with Russia. The Eurozone itself is under internal pressure again, with risks of a re-emergence of the dormant crisis of a decade ago.

So far, a common energy shock, explains most of the inflation we have seen. The structure of the energy price cap may explain why we have spiked now, later than the rest of Europe. But if over the coming year these inflation numbers stay higher for longer here in the UK than the rest of advanced European and world economies, the shadow of post-Brexit policy changes only really affecting this country will loom large.

Newsletter

Related Articles

0:00
0:00
Close
GB News Faces Regulatory Complaints Over On-Air Remarks on ‘Genocide’ Claims
UK Signals Expanded Support for Gulf Allies as Iranian Attacks Intensify Regional Threats
UK VAT Decision Opens Path for Potential Refunds to U.S. Biopharma Firms
UK and Canada Advance ‘Middle Power’ Strategy to Shape Global Influence Beyond Superpowers
Google Explores AI Opt-Out Features in Search to Address UK Regulatory Concerns
Google Explores AI Opt-Out Features in Search to Address UK Regulatory Concerns
UK Fuel Prices Poised to Surge as Global Tensions Drive Oil Market Volatility
UK Fuel Prices Poised to Surge as Global Tensions Drive Oil Market Volatility
UK Holds Back on Hormuz Escort Mission While Continuing Talks with Allies
TrumpRx Pricing Platform Faces Scrutiny as Some Medicines Remain Costlier Than in the UK
UK, Netherlands and Finland Explore Joint Defence Investment Bank to Boost Military Capability
Deadly Meningitis Outbreak in Kent Raises Alarm as Cases Surge and Emergency Response Expands
UK Security Adviser Viewed US-Iran Nuclear Deal as Within Reach Before Sudden Escalation
UK Prime Minister Urges Continued Focus on Ukraine Amid Escalating Iran Conflict
UK Introduces New Safeguards to Shield Lenders from Bank Run Risks
UK Promotional Products Market Surpasses £1.3 Billion as Demand Strengthens in 2025
Reeves Pushes for Deeper UK-EU Economic Ties to Revive Growth
UK Security Adviser Saw No Imminent Iranian Nuclear Threat Days Before War Erupted
France Signals Warm Welcome for UK Return to EU Single Market Amid Renewed Cooperation Talks
UK Defence Official Criticises Boeing Over Delays to E-7 Wedgetail Programme
UK Urged to Secure Quantum Talent as Minister Warns Against Repeating AI Setbacks
UK Mayors Set to Gain New Spending Powers Under Reeves’ Fiscal Devolution Plan
Western Allies Urge Restraint as Israel Weighs Expanded Ground Operation in Lebanon
Trump Warns NATO Faces ‘Very Bad’ Future Without Stronger Allied Support in Iran Conflict
UK Minister Says Britain Not Bound to Support Every Demand From U.S. President
Starmer Tells Trump Britain Will Not Be Drawn Into Wider Iran War
Starmer Tells Trump Britain Will Not Be Drawn Into Wider Iran War
UK Set to Introduce Steel Tariffs of Up to 50 Percent in New Industrial Strategy
European Governments Decline Trump’s Call to Send Warships to Reopen Strait of Hormuz
Fears Over Iran Conflict Weigh on UK Consumer Confidence
Starmer Says UK Working With Allies on Hormuz Shipping Plan After Trump Raises Pressure
Iran War and Energy Shock Shake Britain’s Economy and Political Debate
Deadly Meningitis Outbreak at UK University Leaves Two Dead and Several Seriously Ill
Deadly Meningitis Outbreak at UK University Leaves Two Dead and Several Seriously Ill
King Charles and Queen Camilla Share Personal Tributes to Their Mothers on UK Mother’s Day
Prince William Honors Princess Diana with Mother’s Day Tribute
UK Economy Stalls in January as Households Cut Back on Eating Out
AI-Generated Singer Becomes Viral Voice for Iranians With New Anthem
London Private Club Founder Plans Exclusive Palm Beach Venue Near Trump’s Mar-a-Lago
Ed Davey Urges Britain to Build Fully Independent Nuclear Missile Capability
What the UK Covid Inquiry Is and How It Investigates Britain’s Pandemic Response
What the UK Covid Inquiry Is and How It Investigates Britain’s Pandemic Response
US Treasury Links British Polo Patrons to Alleged Venezuelan Oil Proceeds Laundering Scheme
Hundreds Gather in London Despite Ban on Annual Pro-Palestinian March
Two Dead and Multiple Students Seriously Ill After Invasive Meningitis Outbreak at UK University
UK Considers Deploying Ships and Mine-Hunting Drones to Reopen Strait of Hormuz
Starmer and Trump Discuss Urgent Need to Reopen Strait of Hormuz Amid Escalating Iran Conflict
Prince Harry and Meghan Markle’s Planned Australia Visit Draws Mixed Reaction From Local Communities
Trump Calls on France and UK to Help Safeguard Strait of Hormuz Shipping Route
Boris Johnson Labels Bitcoin a ‘Ponzi Scheme’, Sparking Debate in Crypto World
×