Saxo Bank head of macro
(Christopher Dembik is Head of Macroeconomic Research at Saxo Bank)

The UK looks more and more like an EM

Sharply rising inflation, political unrest, trade disruptions from Brexit and COVID, social distress and an energy crisis, are all making the British economy appear more like one from the developing world rather than the sixth largest in the world, according to a research note from Christopher Dembik, head of macro analysis at Saxo Bank.

“What Brexit has not done by itself, Brexit coupled with Covid and high inflation have succeeded in doing,” Dembik said adding that “the UK economy is crushed.” The only thing keeping the British economy from fully looking like an “emerging-market economy,” according to Dembik, is a currency crisis.

The analyst said, however, that all indications point to further economic hardship in the future for the nation. “New car registrations, which are often considered as a leading indicator of the overall UK economy, continue to drop. This also reflects the deep collapse in consumer confidence. In July 2021, after the peak of the pandemic, new car registrations stood at 1,835,000. They now stand at 1,528,000, a sharp drop of 14%. This is the lowest level since the end of the 1970s. The recession will be long and deep. There won’t be an easy escape. This is the most worrying, in our view. The Bank of England (BoE) assesses the slump will last with GDP still 1.75 % below today’s levels in mid-2025.”

The BoE anticipates that inflation will jump to 13% as the energy crisis intensifies. Citigroup estimates inflation in the United Kingdom could peak at 18% in early 2023, while Goldman Sachs warns it could reach 22% if natural gas prices “remain elevated at current levels.”

Adding to woes, soaring energy bills are threatening to put six in 10 British manufacturers out of business, according to a new survey by MakeUK, the lobby group for UK factories. “The current crisis is leaving businesses facing a stark choice,” the report said. “Cut production or shut up shop altogether if help does not come soon.” Furthermore13% of factories now have reduced hours of operation or are avoiding peak periods.