A think tank has issued a stark warning that the UK is on the brink of encountering a five-year period of "lost economic growth," disproportionately impacting the most vulnerable segments of

the population.

The National Institute for Economic and Social Research (Niesr) has attributed this predicament to a trifecta of factors: the tumultuous impacts of Brexit, the ongoing ramifications of the Covid pandemic, and Russia's incursion into Ukraine.

The ripple effects of this combination have reverberated across the economy, prompting Niesr to project that the spending power of workers in several regions of the UK will linger below pre-pandemic levels until the conclusion of 2024.

In terms of economic output, the gross domestic product (GDP) of the UK, encompassing all goods and services generated, is not anticipated to rebound to 2019 levels until the latter half of the forthcoming year, according to Niesr's projections.

This prolonged period of sluggish growth has only exacerbated the disparities between affluent and impoverished regions, with Niesr highlighting that real wages in London are predicted to be 7% higher by the close of next year than they were in 2019. In contrast, areas like the West Midlands are poised for a 5% reduction, the analysts noted.

Notwithstanding wage hikes, soaring inflation has propelled prices upward, intensifying the financial squeeze felt by households across the nation.

Niesr anticipates that inflation, the pace at which prices escalate, will consistently surpass the Bank of England's target of 2% until early 2025, indicating an ongoing escalation in the cost of living. The present inflation rate stands at 7.9%.

While the Bank of England, entrusted with curbing inflation, recently expressed confidence in achieving its 2% goal by early 2025, Niesr contends that factoring in inflation, many UK regions will not see wages surpass pre-pandemic levels until the end of next year.

Niesr's Prof Adrian Pabst has emphasized that low-income households will bear the brunt of these repercussions, as real disposable incomes for this group are predicted to decline by around 17% over the five-year period leading to 2024.

"For some of the poorest in society, coping with low or no real wage growth and persistent inflation has involved new debt to pay for permanently higher housing, energy, and food costs," Prof Pabst stated.

The Bank of England's consecutive interest rate hikes, aimed at making borrowing more expensive to mitigate demand and quell inflation, have provoked debates among economists. There are concerns that overly aggressive rate increases could plunge the economy into a recession, typically defined as two consecutive quarters of economic contraction.

While Niesr believes that a recession can be averted this year, it does acknowledge a "60% risk" of one emerging by the close of 2024.

The Bank's outlook predicts constrained growth and rising unemployment for the UK, despite rejecting the notion of a recession. A thriving economy translates to heightened employment opportunities, augmented business profitability, and amplified wages. This virtuous cycle also bolsters government revenue through increased taxation, which can be allocated to public services.

Prof Stephen Millard, Niesr's Deputy Director for Macroeconomic Modelling and Forecasting, has indicated that the combined "supply shocks" of Brexit, Covid, the Ukraine conflict, and escalating interest rates have collectively dealt a heavy blow to the UK economy.

He added, "The imperative to address the UK's underperforming growth remains the primary challenge confronting policymakers as we approach the upcoming election." Photo by GJMarshy, Wikimedia commons.