The Backdrop: A booming economy
For decades, Britain's economy had grown at a steady clip, outpacing its European peers. It boasted one of the world's most powerful financial systems and was host to a booming banking sector. It managed to avoid most of the aftershocks of the global financial crisis. And when it comes to living standards, incomes have risen over time and Britons boast more disposable income than other Europeans.
But today, all that is changing. The British economy has slowed sharply in recent years and now lags behind those of countries like France and Germany. Incomes are stagnant or falling in real terms for many people. With Brexit looming, few economists expect growth to accelerate anytime soon. As unemployment creeps higher and household budgets get squeezed, an air of unease about the country’s future hangs heavy in the air.
What happened? A mix of forces — globalization, technology, and policy choices — contributed to Britain’s woes. But two stand out as having wreaked havoc on workers: immigration and austerity policies imposed by Conservative-led governments since 2010. In this light, Brexit looks less like a revolt against E.U.-mandated immigration rules than another consequence of a set of deeply rooted problems related to government policies on jobs and wages as well as migration within Europe.
The Fall: The financial crisis
In 2008, the financial crisis shook most of the developed world and caused a significant economic downturn. It was at this point that many countries had to start adjusting to their new economic realities. One such country was Great Britain, which had been experiencing steady growth for many years leading up to this moment. The UK's economy contracted by 6% from 2008-2009 and has never really recovered since then. As a result, they have fallen in rankings to around 20th place in terms of GDP per capita (how much each person earns). This is an alarming change for a country that used to be ranked 5th only 15 years ago.
To understand what went wrong with their economy, it is important to analyze how it changed over time and why these changes occurred.
The Aftermath: Austerity and Brexit
In 2008, a global recession led to the Conservative government's austerity plan. The Conservative government cut public services, increased taxes, and welfare reform to try and balance their budget. Austerity was supposed to bring down the national deficit in a short amount of time, but that goal was not achieved. Instead, it caused a reduction in demand for goods and services which led to an increase in unemployment rates. More than 2 million jobs have been lost since 2010 as a result of austerity measures.
If these economic policies had not been implemented, Britain would be ranked as one of the top 5 economies in Europe. But now they are ranked 11th out of 28 countries on Europe's list of wealthiest economies according to GDP per capita (nominal).
The Way Forward: A return to growth?
The next few years will be crucial for Britain's economy. There are two ways it can go. On one hand, the country could continue down the path of austerity; on the other, it could stimulate growth by investing in more public projects and infrastructure, such as building better roads, railways, and housing. Politicians need to choose which way they want to take us – either back up that world economic rankings or even further down them.
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