UK economy and politics take centre stage at UKICE lunch hour

The relationship between political instability and economic performance in the United Kingdom came under sharp scrutiny this week during the latest instalment of the UKICE Lunch Hour series, hosted by UK in a Changing Europe. Economists, policy analysts and political observers gathered to pull apart what many describe as an increasingly uncomfortable marriage between Westminster’s turbulence and Britain’s sluggish growth figures.

A economy still searching for momentum

The numbers aren’t pretty. UK GDP growth has hovered stubbornly below 1% for much of the past year, and business investment remains roughly 4% lower than pre-pandemic projections suggested it would be by now. Panellists pointed to a cocktail of causes — sticky inflation, elevated interest rates and what one analyst described as a persistent “policy uncertainty premium” that’s made companies reluctant to commit capital.

But it’s not all doom. Wage growth has outpaced inflation for several consecutive months, giving households some breathing room after two brutal years of squeezed real incomes. The question is whether that consumer resilience can do enough heavy lifting while business confidence stays flat.

Politics making things worse?

That’s the charge several speakers were willing to lay at Westminster’s door. The argument goes like this: frequent shifts in fiscal signals — from Liz Truss’s disastrous mini-budget in September 2022 through to the current government’s stop-start approach to capital spending — have made it genuinely hard for businesses to plan beyond an 18-month horizon.

“When the rules of the game keep changing, players stop making long bets,” said one senior fellow at the institute. “That’s not ideology, that’s just rational behaviour.”

Still, others pushed back. Some panellists argued that blaming politics lets structural problems off the hook — things like chronic underinvestment in skills, a planning system that can take a decade to approve major infrastructure, and a services sector that’s never fully adapted to post-Brexit trading realities.

Brexit’s long shadow

The B-word surfaced repeatedly, as it tends to at these gatherings. Trade in goods with the EU remains around 15% below where independent forecasters expected it to be had the UK stayed in the single market. Services trade has held up better, but the friction is real and measurable.

And yet the political appetite for revisiting the trade and cooperation agreement — let alone anything closer — remains vanishingly small across both major parties. So the debate at UKICE wasn’t really about whether to reopen Brexit. It was about how to squeeze more economic performance out of the arrangements that now exist.

What comes next

With a general election no more than months away, these discussions carry unusual urgency. Whoever forms the next government will inherit an economy that’s neither in crisis nor comfortably growing — a kind of grey zone that demands patient, consistent policy rather than dramatic gestures.

That consistency, panellists suggested, has been precisely what’s been missing. Whether the next occupant of Downing Street can provide it remains the central economic question of the coming year.