Why the economy is where it is……

My layman’s guide to the current economic situation in the UK, written only because someone recently asked for my view of how the country has arrived at this point.  It’s never about one single factor and shows that 20/20 hindsight can be a wonderful thing.

1.     Successive bouts of quantitative easing created higher liquidity in the market.  Week 1 Economics tells us that increased money supply, without a corresponding increase in production and/or services, leads to inflation

2.     The cost of Covid support and the resulting level of government debt has reduced options in terms of tax-based incentivisation

3.     The cost of government debt increases with each rise in interest rates, compounding the issue

4.     Brexit – has led to workforce gaps in certain sectors of the economy

5.     Imported inflation - the war in Ukraine has had a profound effect on the price of some raw materials

6.     Raising interest rates risks causing depression whilst attempting to cure inflation; potentially we get both at once, ie. stagflation

7.     Changing preferences of some workers closer to retirement age have caused workforce shortages, restraining production growth

8.     Wealthy pensioners and others fortunate enough to own a property without mortgage are not adversely affected by interest rate hikes, making the latter less effective as a monetary tool

All considered and leaving politics aside, this is a tricky one for any government to deal with!