Why the UK is having an economic crisis

It turns out deficits do matter after all.

In my experience, British people tend to be very doom-and-gloom about their nation’s economy. But really, over the past three decades, it hasn’t done badly at all! Compared to its peers in Europe and the Anglosphere, its growth has been very middle-of-the-pack, and it even kept growing in the years after Brexit.

So when I see people saying apocalyptic things about the crash in the pound and the rise in British bond yields, I try to keep calm. The British economy is not collapsing. The UK is not a poor country, nor is it likely to become one anytime soon.

But it’s undeniable that it’s having a difficult time right now. Calling this a “crisis” might be a bit overblown compared to what, say, Sri Lanka is experiencing, but unless things improve quickly, British people are in for tougher times ahead. The crash came on suddenly, but it had its roots in long-standing, chronic economic weaknesses. And the country’s leaders seem paralyzed, flummoxed, and utterly unprepared. So I guess using the word “crisis” here is acceptable.

So what is happening to the British economy, and why? The easiest way to understand this, I think, is to analyze this episode as a milder, gentler version of the kind of crisis that tends to plague emerging markets.

The British crisis as a mild variant of an emerging-market crisis