Why Britain is doing better than the EU

To be clear, the Chancellor could, and probably should, have gone further in his Spring Statement. The measures announced last month will undo just one-sixth of the tax rises he has previously announced, and still left £30bn of fiscal headroom that could have been used now.

My own wishlist included a more realistic uprating of benefits, which are only being increased by the September 2021 inflation rate of 3.1pc, a one-year postponement of the hikes in National Insurance rates, and more to lower the standing charges in energy bills by taking off some of the environmental and social levies.

There are some relatively easy wins on regulation too, from rowing back on plans to restrict the promotion of “buy one get one free” offers, to doing more to lower the costs of housing and childcare by reducing red tape. Energy policy remains a dog’s breakfast.

But these shortfalls do not justify claims that Rishi Sunak has been idle, or that this is a “Tory” cost-of-living crisis unique to “Brexit Britain”.

Indeed, there are many reasons why the UK should weather the coming storm much better than the EU economies. One is that the UK economy had greater positive momentum at the start of the year. For example, the S&P Global PMI business surveys suggest that private sector activity in the UK outpaced the eurozone in every single month between October and March. (Yes, despite the Brexit drag on trade.)

In part this reflects the fact that the UK is one of the first major countries to emerge from lockdown. The pandemic may not be over (worryingly, staff absences are climbing again). But our economy is learning to live with Covid much sooner than most.

The UK economy is also less exposed to the fallout from the Russian invasion of Ukraine. Our trade and financial links with Russia are relatively limited, though no one can escape the volatility in energy prices.

The UK has two other big advantages over the rest of Europe. First, our labour market is relatively tight and nominal wages are rising more quickly. Private sector pay growth in the euro area is barely 2pc, perhaps half the rate in the UK. As a result, while real wages are still likely to fall in the UK, they should at least fall by less than elsewhere.

Greater job security should also give UK households more confidence to dip into savings (where they have them) to maintain spending and living standards, even if incomes fall.

Second, there is far more scope for business investment to rise in the UK. In the fourth quarter of last year, business investment was still 8.6pc below its pre-Covid level. This year, though, surveys suggest that investment is finally set to rebound, helped by tax breaks and an easing of some of the Covid and Brexit uncertainties that have held companies back over the last few years.

Compared to their pre-Covid peaks, the UK economy had already caught up with the euro area in the final quarter of last year. This year the UK should pull ahead. The Government – and Sunak – deserve at least some credit for this.

Julian Jessop is an independent economist. He tweets @julianhjessop

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