UKICE lunch hour: can UK politics fix a struggling economy?
The UK economy’s persistent underperformance took centre stage this week at the latest UKICE Lunch Hour event, where economists and policy analysts gathered to dissect the uncomfortable relationship between political decision-making and Britain’s sluggish growth figures. With GDP expanding by just 0.1% in the most recent quarterly data, the mood was serious.
Growth stuck in first gear
Britain’s economy has now underperformed the G7 average for three consecutive years. That’s not a blip — it’s a pattern. Panellists at the event pointed to a combination of weak business investment, persistently high borrowing costs, and what one speaker called a “policy environment that businesses simply can’t plan around.” The Bank of England’s base rate, still sitting at 4.5%, continues to squeeze household budgets and dampen consumer spending.
And then there’s the productivity puzzle. Output per hour worked in the UK remains roughly 15% below comparable levels in Germany and France. That gap didn’t appear overnight, but it’s getting harder to ignore.
Political uncertainty doing real damage
A recurring theme through the session was how domestic political volatility translates directly into economic hesitation. Businesses don’t invest when they don’t know what the rules will be in 18 months. It’s that simple. The discussion touched on Labour’s first full budget, the reception it received from markets, and whether the government’s fiscal rules are credible enough to anchor long-term expectations.
One senior economist at the event put it plainly: “The UK has a political culture that treats economic policy as a campaigning tool. Until that changes, serious structural reform is going to be incredibly difficult to deliver.”
Still, not everyone in the room was pessimistic.
The Europe question won’t go away
Perhaps the most pointed discussion centred on the UK’s trading relationship with the European Union. Four years after the Trade and Cooperation Agreement came into force, the evidence on trade costs is mounting. Non-tariff barriers have added friction estimated at the equivalent of a 13% tariff on goods exports to the EU. Services, which account for around 80% of the UK economy, remain poorly covered by the deal.
Panellists debated whether a closer alignment with EU regulations — particularly in areas like financial services and agri-food — could realistically be pursued without triggering a fresh political fight at Westminster. The answer, cautiously offered, was: maybe, but not yet.
What comes next
The UKICE event didn’t offer a neat resolution, and that itself felt honest. Britain’s economic challenges are structural, deep, and partly self-inflicted. Fixing them will require sustained political will that has so far been in short supply.
The next major test comes in the spring spending review, where the Treasury will have to make difficult choices about capital investment and public services. Whether that process produces genuine reform or another round of managed decline is a question economists are watching very closely.
