Tower bridge in London

What do the UK’s economic policy U-turns mean for growth?

A plethora of policy changes:

Over the last few months, the UK government led by Rishi Sunak has delayed the banning of combustion engine cars from 2030 to 2035, watered down the transition from gas boilers to heat pumps, announced it would authorize over 100 fossil fuel drilling licenses, and scrapped a planned high-speed rail link to the north of the country—all policies which were espoused by his Conservative predecessor Boris Johnson.

A potential hit to investment:

The decision to slow the shift to a low-carbon economy could weaken private spending on renewables and other green technologies in the coming years; Car manufacturers—which are currently investing heavily in the electrification of their facilities and vehicles—were among the most vocal critics of the government’s policy changes. The fading political will to go green also comes at a moment of surging costs for some clean energy projects which is already set to hamper investment in the sector. In September, the UK’s latest offshore wind auction failed to attract any private sector bids, with firms citing a lack of profitability. Moreover, the decision to rip up key planks of government policy follows frequent changes to the tax regime, the government’s own fiscal rules, and the country’s Prime Minister in recent years. Such persistent political flip-flopping is likely to persist—within 18 months, current polls suggest the Labour Party will be in office—which could make companies wary of committing large sums of capital across the economy more generally.

Long-term challenges:

Recent policy announcements do little to address two pressing challenges that the country faces: improving trading relations with the EU, and funding quality public services as the population rises and ages. On the former, neither Labour nor the Conservatives are countenancing a return to the Single Market nor Customs Union, meaning trade barriers with the bloc will likely remain substantial in the coming years. Regarding the latter, IMF data suggests that the UK’s public revenues and tax-to-GDP ratios are still more than 3 percentage points below the G7 average. This suggests room to boost taxes and spending—something the current government is not likely to contemplate but which could happen under Labour. Moreover, with the country’s attractiveness permanently tarnished by Brexit, our panelists currently forecast fixed investment growth in the UK to be well below the G7 average out to 2027. Sunak’s recent policy decision may only widen that gap.

Insight from our analysts

On the long-term economic outlook, EIU analysts said:

“The reversals on these [green] proposals will have a modest negative impact on investment and decarbonisation in 2023 and 2024, and we still forecast that Labour will win a majority in the election next year. However, hardening opposition towards green policies may encourage Labour to pursue a more modest decarbonisation programme in government, in the face of more organised and mobilised opposition to these policies.”


Our coverage is now broader than ever. In the past, we collected forecasts from panelists covering the next 5 years. Now, we publish updated forecasts through 2050 via our API and flat files. On FocusAnalytics, our forecasts cover the next 10 years.  Get a free trial now!

Free sample report

Access essential information in the shortest time possible. FocusEconomics provide hundreds of consensus forecast reports from the most reputable economic research authorities in the world.

Close Left Media Arrows Left Media Circles Right Media Arrows Right Media Circles Arrow Quote Wave Address Email Telephone Man in front of screen with line chart Document with bar chart and magnifying glass Application window with bar chart Target with arrow Line Chart Stopwatch Globe with arrows Document with bar chart in front of screen Bar chart with magnifying glass and dollar sign Lightbulb Document with bookmark Laptop with download icon Calendar Icon Nav Menu Arrow Arrow Right Long Icon Arrow Right Icon Chevron Right Icon Chevron Left Icon Briefcase Icon Linkedin In Icon Full Linkedin Icon Filter Facebook Linkedin Twitter Pinterest