GDP in the United Kingdom has fallen in May while inflation keeps ramping up. Is the UK destined to stagflation?
Gross Domestic Product declined in the United Kingdom in May, new Office of National Statistics data shows. The revised calculation puts the UK firmly behind the EU in GDP growth, despite performing better than expected.
Analysts expected a 0.3% GDP contraction, but data showed it only declined by 0.1%. Nevertheless, it is a bleak scenario for the United Kingdom, who remains the second worst performing economy in the G7 after Germany.
Germany, following a year-long energy crisis and double-digit inflation, fell into recession in June after a second quarter in a row of GDP de-growth. The Eurozone promptly followed suit after revised Q1 data showed a 0.1% GDP decline.
But the United Kingdom is in a league of its own. Economic stagnation has hampered British growth for seven years, and its place in world trade is being constantly put under question.
The UK was the only developed country where annual inflation increased in May, jumping to 8.7%. Consumer prices are expected to fall to 5% by the end of 2023. By comparison, EU June inflation dropped to 5.5%, while in the United States it was revealed to be just 3%.
As a result, the Bank of England will continue heavily raising interest rates, weakening the country’s economy even further.
The Brexit effect
"The UK’s stagnating economy has continued to slip further and further behind that of the EU’s, as a direct result of the damaging Brexit," a spokesperson for the Scottish National Party said.
Though the Covid-19 pandemic and the Russian invasion of Ukraine undeniably made it worse, UK’s stagnation and economic problems began with the Brexit Referendum in 2016.
The EU economy was growing steadily before the pandemic and quickly rebounded from recession within two years afterwards. The United Kingdom, on the other hand, has not returned to pre-Covid levels yet.
Exports have fallen dramatically since Brexit officially began. Tariffs and regulations make the United Kingdom unattractive for foreign businesses, while domestic firms wish to relocate to the EU. The City of London is quickly losing its international predominance, while the London Stock Exchange has fallen to a simple local market.
Exports in May have fallen by 2.1% to the world and 6.8% to the EU. British Prime Minister Rishi Sunak has included the United Kingdom in a trade deal with South-East Asian countries, but it’s far from enough to make up for the difference.
The Financial Times estimates that the UK has lost 4% of potential GDP growth every year since Brexit. The new Sunak deal will add, according to estimates, 0.4% GDP growth per year.
The UK has chosen the worst possible time to make the worst possible decision imaginable.
