UKICE lunch hour puts UK economy and political risk under spotlight

The UK in a Changing Europe’s regular lunch hour series took a sharp turn toward the uncomfortable this week, as analysts and academics gathered to pick apart how political dysfunction is bleeding directly into the UK’s economic prospects. The conversation was blunt, and the numbers behind it were hard to ignore.

Political noise is hitting real economic decisions

Business investment in the UK has remained stubbornly weak for years. Since the 2016 referendum, the country has ranked near the bottom of G7 nations for capital investment as a share of GDP. Speakers at the UKICE session argued that political uncertainty — not just Brexit, but the rolling instability of successive governments — has made long-term planning almost impossible for firms operating here. It’s not just a Brexit hangover. It’s a chronic condition.

One analyst at the session put it plainly: “Companies aren’t waiting for the perfect policy environment. They’re waiting for any signal that things will be stable for more than 18 months.” That stability, the room largely agreed, isn’t coming quickly.

Trade and the post-Brexit reality

The session also returned, inevitably, to trade. UK goods exports to the EU fell sharply in the years following the Trade and Cooperation Agreement, and while some sectors have adapted, the friction is real and measurable. Services — which account for roughly 80% of the UK economy — face their own set of unresolved barriers, particularly in financial services and professional mobility.

But the discussion didn’t dwell purely on what went wrong. There was genuine debate about whether the UK’s current government has the appetite to push for deeper cooperation with Brussels, whether through veterinary agreements, mutual recognition deals, or something more ambitious. So far, the signals are mixed at best.

Domestic politics complicates every equation

Still, the domestic picture is the backdrop to all of this. With the Labour government managing a tight fiscal position — borrowing costs have risen sharply, and the Office for Budget Responsibility has already revised growth forecasts downward twice this year — the room for manoeuvre is genuinely narrow. Tax rises implemented in the autumn budget, including the hike to employer national insurance contributions, are already drawing complaints from businesses about hiring freezes.

That tension, between what economists think needs to happen and what politicians can actually deliver, ran through the whole session.

What comes next

The UKICE lunch hour format is deliberately informal, but the questions it surfaces are anything but. As the UK approaches a critical period for its relationship with both Washington and Brussels — with trade negotiations ongoing on multiple fronts — the interplay between political credibility and economic outcomes is only going to sharpen.

And the think tank’s broader body of work suggests the UK won’t resolve these pressures with quick fixes. The structural issues, from productivity to investment to trade access, will require sustained political will that Westminster hasn’t yet demonstrated it can provide.