Why Britain Stopped Growing

SUMMARY

Economist Paul Johnson and portfolio manager Brian Kersmanc join Ed Elson to examine the UK’s prolonged economic stagnation, the political fallout from Keir Starmer’s resignation, and the global market implications of U.S.-Iran negotiations. The discussion highlights systemic challenges in the UK, the impact of geopolitical uncertainty on oil prices, and the broader warning Britain’s experience offers to other economies considering protectionist policies.

MAIN POINTS

• The UK faces nearly two decades of stagnant economic growth, with average earnings unchanged over 20 years and mounting political instability. [1:30]
• Paul Johnson identifies low productivity growth, Brexit-related uncertainty, and policy missteps as key contributors to the UK's economic malaise. [6:00]
• U.S.-Iran negotiations create volatility in oil markets, with ongoing uncertainty over the Strait of Hormuz and a temporary U.S. license allowing Iran to sell oil in dollars. [13:00]
• Oil prices remain elevated but not extreme due to inventory drawdowns and cautious market optimism, while global supply concerns persist. [20:00]
• The UK’s post-Brexit economic decline serves as a cautionary tale, with parallels drawn to current U.S. debates over tariffs and protectionism. [27:00]

DETAILED ANALYSIS

Britain is experiencing an unprecedented period of economic stagnation, with average earnings today nearly identical to those two decades ago. This stagnation is unparalleled in the country's modern history and has fueled a persistent cost of living crisis, leading to widespread public dissatisfaction and increasingly chaotic politics. The rapid turnover of prime ministers—seven in ten years—reflects a deeper systemic malaise rather than mere leadership failures.

Paul Johnson, economist and Provost of The Queen's College at Oxford, attributes the UK's woes to a combination of factors: the lingering effects of the 2008 financial crisis, the disruptive impact of Brexit, and a series of policy missteps. The financial sector, especially in London, was hit hard by the global downturn, and the uncertainty following the 2016 Brexit referendum further dampened growth prospects. Brexit alone is estimated to have reduced GDP growth by several percentage points and sharply curtailed business investment.

In addition to these shocks, the UK’s planning system and tax structure are seen as barriers to growth. The country’s complex tax code and restrictive planning regulations make it difficult to build infrastructure and housing, stifling productivity improvements. While many European economies face similar headwinds, the UK’s challenges are more acute, exacerbated by political instability and a lack of consensus on reform.

The likely incoming prime minister, Andy Burnham, is viewed as more left-leaning than his predecessor, Keir Starmer, but his specific economic policies remain unclear. Burnham’s political trajectory has shifted over the years, and while he advocates a form of 'business-friendly socialism,' there is little concrete information about how this would translate into national policy. Technocratic solutions—such as tax reform, increased investment, and easing planning restrictions—are broadly agreed upon among experts but remain politically unpopular and thus unimplemented.

On the international front, recent U.S.-Iran negotiations have injected further uncertainty into global markets. The signing of a memorandum of understanding aimed at ending hostilities has not yet resulted in a meaningful resumption of oil shipments through the Strait of Hormuz. The U.S.

Treasury’s decision to grant Iran a 60-day license to sell oil in dollars marks a significant shift, but logistical and security concerns persist. Insurance costs for shipping through the strait have surged, and many energy companies are hesitant to resume normal operations. Despite these disruptions, oil prices have remained in the $70–$80 per barrel range, largely due to strategic inventory drawdowns in the U.S. and China.

However, these reserves are approaching operational minimums, raising the risk of sharper price increases if the situation does not resolve soon.

The uncertainty surrounding the strait has introduced a risk premium to energy markets and is beginning to affect broader economic indicators. Rising transportation and fuel costs are filtering through to consumer prices and industrial inputs, contributing to upward pressure on inflation. Retailers and industrial firms are already reporting higher costs, and shipping rates have climbed significantly since the strait’s partial closure.

This inflationary pressure complicates the outlook for interest rates, with markets divided on whether central banks will be able to cut rates in the near term.

The episode concludes by drawing a parallel between the UK’s post-Brexit experience and current debates in the U.S. over tariffs and protectionism. The UK’s decision to leave the EU, intended to boost national sovereignty and economic prospects, has instead led to lower GDP per capita and reduced business investment. With almost 60% of Britons now expressing regret over Brexit, the UK serves as a cautionary example for other countries considering similar policies.

The discussion warns that protectionist measures, while politically appealing, can have long-lasting negative effects on economic growth and political stability.

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