London Daily

Focus on the big picture.
Sunday, Mar 22, 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
Duchess of Sussex Secures ‘As Ever’ Trademark Rights in Australia Ahead of High-Profile Visit
UK Reaffirms Security as Officials Reject Claims of Immediate Iranian Missile Threat
Rising Middle East Tensions Spark ‘Trumpflation’ Debate Over Impact on UK Households
UK Minister Says No Evidence Iran Can Strike Europe Despite Heightened Warnings
British-Iranians Voice Safety Concerns to Authorities as Regional Conflict Intensifies
Confirmed Meningitis Cases Linked to Kent Outbreak Revised Down to Twenty
UK Government Sees No Evidence Iran Can Strike London Amid Rising Regional Tensions
Debate Grows Over Recognition of Indigenous Cultural Icons in the United Kingdom
Iran Missile Launch Toward Diego Garcia Raises Questions After Failed Strike on US–UK Base
Donald Trump Amplifies Viral Satirical Clip Highlighting UK–US Political Dynamics
UK Satirical Show Draws Attention with Sketch Referencing Trump and Prince Andrew
Meghan Markle’s Possible UK Return Sparks Renewed Attention on Sussex Role
Starmer Convenes Urgent Talks on Cost-of-Living Pressures Linked to Iran Conflict
Starmer Convenes Urgent Talks on Cost-of-Living Pressures Linked to Iran Conflict
UK Investors Eye Bargain Shares Ahead of ISA Deadline Amid Market Volatility
UK Investors Eye Bargain Shares Ahead of ISA Deadline Amid Market Volatility
Northern Lights Expected Over UK Skies Tonight Amid Strong Solar Activity
UK Condemns Iran Missile Strike and Warns Against Threats to British Personnel
UK Warns of Global Flight Disruptions as Iran Conflict Escalates Under Trump’s Leadership
UK Condemns Iran After Missile Strike Targets Strategic Diego Garcia Base
Deadly Meningitis Outbreak in UK Reinforces Urgency of Vaccination Campaigns
Iran Launches Long-Range Missile Strike on Remote US-UK Base, Signaling Expanded Reach
Iran Launches Long-Range Missile Strike on Remote US-UK Base, Signaling Expanded Reach
UK Rules Out Cyprus Base Role in Joint US Self-Defence Framework
UK Ends Hereditary Peerage Rights in Parliament in Historic Constitutional Reform
Lord Walney Warns of Expanding Iranian Influence Networks Within the United Kingdom
Iranian National Among Two Arrested After Attempt to Access UK Nuclear Submarine Base
Deregulation, Artificial Intelligence, and Fraud Laws Reshape UK Financial Services Landscape
UK Considers Lower Speed Limits to Reduce Fuel Use Amid Escalating Energy Crisis
UK Borrowing Costs Surge to Post-Crisis High as Markets React to Inflation and War Risks
UK Government Prepares Emergency Economic Measures as Iran Conflict Fuels Financial Risks
Meningitis B Outbreak in the UK Raises Urgent Health Warnings as Cases Surge
Iran Issues Stark Warning to Britain Over US Base Access Amid Expanding Conflict
United Kingdom Authorizes US Strikes from British Bases as Iran Threatens Key Shipping Routes
Reform UK Suspends Scottish Candidate Following Financial Misconduct Allegations
Apple issues an unusual warning: this is how your iPhone can be hacked without you doing anything
UK and Nigeria Reach Agreement to Accelerate Return of Irregular Migrants
UK Sets New Aid Priorities Following Significant Budget Reductions
Cyprus President Urges Open Dialogue Over Future of British Sovereign Base Areas
Cyprus President Urges Open Dialogue Over Future of British Sovereign Base Areas
UK Plans 50% Steel Tariffs in Bold Move to Protect Domestic Industry
Iran Conflict Sends Shockwaves Through UK Economy as Energy Costs and Trade Risks Surge
UK Health Officials Warn Kent Meningitis Outbreak Still Active as Cases Continue to Rise
UK Climate Progress Faces Scrutiny Over Reliance on Carbon Accounting Methods
UK Deploys Advisers to United States to Shape Plan for Reopening Strait of Hormuz
Amazon Bets on AI-Driven Alexa Upgrade to Revive UK Smart Speaker Market
UK Abortion Law Changes Spark Strong Response from Church Leaders and Pro-Life Advocates
UK Abortion Law Changes Spark Strong Response from Church Leaders and Pro-Life Advocates
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
×