UK economy 'to look more like Italy's than Germany's by end of decade' - think tank

18 May 2021, 06:06 | Updated: 18 May 2021, 10:00

The UK economy is facing a "decisive decade" of change, the think tank said
The UK economy is facing a "decisive decade" of change, the think tank said. Picture: PA
Nick Hardinges

By Nick Hardinges

Britain's economy will look more like Italy's than Germany's by the end of the decade if it continues to underperform, a think tank has warned.

A report by the Resolution Foundation (RF) and the London School of Economics Centre for Economic Performance stated the country was facing a "decisive decade" of change.

It said the UK needs to urgently address the "seismic economic shifts" of the impact of coronavirus, Brexit, the transition to net-zero carbon emissions and an ageing population combined with rapid technological change.

Read more: UK economy shrank 1.5% during third national lockdown

The RF warned that Britain could fall further behind nations with similar economies unless it rebuilds its economic strategy with these challenges in mind.

It comes as Boris Johnson has promised to "build back better" after the Covid crisis. However, the government is yet to map out a plan for achieving its flagship objective.

The report said the UK had started the decade with considerable strengths - including record employment levels pre-pandemic, global strengths in high-value services and a political consensus over its net-zero target.

Read more: UK economy shrank 2.9% in January after lockdown measures hit economy

However, it also warned that Britain - without a proper strategy - could risk losing these strengths if it fails to address its major weaknesses, such as the slowest productivity growth for more than 120 years and greater inequality than any country in the European Union except Bulgaria.

It said that if the UK's pace of underperformance relative to Germany continued at the same rate it would end this decade with a per capita national income closer to that of Italy.

Read more: UK economy grew in February during third national lockdown

RF founder Sir Clive Cowdrey said: "The UK's recent record of weak productivity, stagnant living standards and high inequality makes a new economic approach desirable. What makes a new approach essential is the scale of coming change.

"The UK now faces a decisive decade as the aftermath of Covid-19, Brexit and the Net Zero transition come together with major shifts in technology and demography.

"This matters for far more than economics. Failing to rise to this challenge risks leaving the nation diminished and divided."