Why the UK Is Facing a Worse War Outcome Than the Euro Area
Britain’s economy will suffer more from the war than its European neighbors.
Photographer: Jack Taylor/Getty Images EuropeWhy is it that the UK fares worse in times of crisis than its euro area peers? Structural rigidities embedded in the UK economy, such as government-administered utility prices and inflation-protected public sector wages, make price increases much stickier. That's been instantly reflected in the faster increase in gilt yields combined with a more concerned central bank response to the prospect of rising consumer prices. Prior to the Iran war, the UK was expected to outperform its euro area peers — but things have changed fast, and that’s largely down to how inflexible the British economy has become.
In its March outlook released last week, the Organization for Economic Co-operation and Development (OECD) said it now expects Britain will be the second-slowest growing advanced economy this year (just ahead of Italy) as growth expectations were cut to 0.7% from 1.2%. But the real shocker is Britain’s 2026 inflation outlook being revised to 4% from 2.5%: That’s a quantum leap ahead of the euro area, and would leave the UK with the second-highest inflation rate after the US.