London (Parliament Politic Magazine) – A think tank has issued a warning that the spending power of workers in several UK regions will not recover to pre-pandemic levels until the end of 2024. The National Institute for Economic and Social Research (Niesr) attributes this setback to a triple blow of Brexit, the Covid-19 pandemic, and Russia’s invasion of Ukraine, all of which have significantly impacted the economy.
According to Niesr’s projections, the UK is expected to endure five years of lost economic growth, with the most vulnerable individuals being hit the hardest. In response to this, the Treasury has claimed to have facilitated the reintegration of 100,000 individuals into the workforce.
The Outlook for Paychecks: Londoners Rejoice
In recent years, inflation, which measures the rate at which prices increase, has skyrocketed, resulting in a higher cost of living for millions of people. Although wages have also increased, they have not kept pace with rising prices, leaving households across the UK feeling financially strained.
Niesr, one of the UK’s oldest economic forecasting bodies, predicts that this situation will continue to impact real wages, which take inflation into account. Regions such as the North East, Yorkshire, the West Midlands, Wales, and Northern Ireland are not expected to see real wages return to 2019 levels until late next year.
By contrast, real wages in London, southern parts of England, the North West, and Scotland are likely to recover more quickly. For instance, in London, real wages are expected to increase by 7% by the end of next year compared to 2019. In contrast, the West Midlands is forecasted to experience a 5% decrease.
London Is Homw To Highly Competitive Industries
According to Prof Stephen Millard, the deputy director for macroeconomic modeling and forecasting at Niesr, London is leading the way in terms of economic recovery. However, he also acknowledged that the capital has been fortunate.
London is home to industries that are highly competitive and engaged in international trade, resulting in high productivity growth. On the other hand, other regions of the country have been significantly impacted by Brexit.
These struggling industries face challenges in importing and exporting, or they are non-traded industries that naturally have slower growth rates.
Niesr has highlighted that the UK’s sluggish economic growth has further widened the gap between the wealthier and poorer regions of the country.
UK Aims To Sllow Down Price Increase
The UK economy’s gross domestic product (GDP) is not expected to return to pre-2019 levels until the second half of next year, according to the latest forecast. This prediction also indicates that inflation, the rate at which prices rise, will remain consistently above the Bank of England’s 2% target until early 2025, resulting in a continued increase in the cost of living.
Currently, inflation stands at an annual rate of 7.9%. The Bank of England, responsible for managing inflation, recently stated that it anticipates meeting its own 2% target by early 2025. To combat inflation, the Bank has raised interest rates 14 consecutive times. The aim is to reduce spending, slow down price increases, and ultimately bring down the inflation rate.
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Aggressive Rate Hikes Could Push The UK In Recession
Nevertheless, some economists caution that excessively aggressive rate hikes could potentially push the UK into a recession, defined as two consecutive quarters of economic contraction. The UK economy is projected to take until the latter half of next year to recover its pre-2019 GDP levels. Inflation is expected to persistently exceed the Bank of England’s target until early 2025, resulting in a continued rise in the cost of living.
The Bank’s strategy to combat inflation involves raising interest rates, but this approach also increases the cost of loans and mortgages, placing additional strain on households. While the Bank aims to keep rates higher for an extended period, there are concerns that overly aggressive rate hikes could lead to a recession.
NIESR has stated that it anticipates the UK to steer clear of a recession in the current year. However, it has also highlighted a 60% likelihood of a recession occurring by the conclusion of 2024. In contrast, the Bank of England does not foresee the UK plunging into a recession but has projected limited growth and an increase in unemployment in the coming years.