Economic Turmoil – Challenges & Opportunities to modernize the global economy

In 2020, the pandemic caused economic turmoil in England, leading to the largest fall in real GDP among G7 countries.

The technical definition of a country in recession is one in which GDP falls for two consecutive quarters, and having flat lined – with GDP growth of 0.0 per cent – in the last quarter of the year, the UK missed this category by a hair’s breadth.

This allowed the Chancellor to say that “our economy is more resilient than many feared”, and that while “we are not out of the woods yet”, the Conservative Party had found the map out of the woods and was pretty sure, this time, that it was holding it the right way up.

Purchasing Managers’ Index and the UK’s Services Sector

Hunt also repeated the now rather dog-eared claim that “the UK was the fastest growing economy in the G7 last year”, which is technically true, but not in a good way. The reason the UK’s economy appeared to grow quickly last year was that it was so badly damaged the year before: Britain experienced the largest fall in real GDP of all G7 economies in 2020, which made our economic rebound appear steeper than others. We remain the only country in the G7 that has not returned to its pre-pandemic size.

Manufacturing Sector and its Importance

The UK’s GDP figure, which includes the output of the NHS and schools, is a controversial issue. It’s debatable whether this accurately reflects economic performance as it can lead to varying speed assessments of the economy, depending on conditions. Additionally, a significant increase in people seeking medical attention, as witnessed in 2021, is arguable as an actual economic upturn. Therefore, those celebrating the stagnant economy need to examine what’s inside the GDP figure.

Government’s Aims and Potential Risks

The purchasing managers’ index (PMI) is a measure of business activity that indicates how much companies are spending on new orders, hiring, and investment. It’s a leading indicator used by economists to predict where GDP and other numbers will go. A PMI score above 50 denotes expansion, while below 50 means contraction. The UK’s services sector, which accounts for 80% of Gross Value Added, reached a two-year low of 48.7, with the PMI not breaching 50 since September 2022. Business spending and investment in the country’s largest economic sector have either declined or stagnated for four months.

Blaming the Recession on Russia is not Enough

UK’s manufacturing PMI has been in contraction since August 2022, pushing the sector into recession, despite accounting for less than 10% of the country’s economic output. The manufacturing sector’s importance lies in its contribution to research, development, and well-paid jobs. The government aims to halve inflation this year by asking the Bank of England to lower it. However, this may result in a recession induced by higher interest rates. Hunt’s comments blaming the recession on Russia ignores the incompetence and political chaos of the past 13 years.

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