OECD Economic Surveys: United Kingdom 2022
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The UK economy recovered from the COVID-19 shock thanks to emergency support measures protecting jobs and incomes and a rapid vaccine rollout, but is slowing amid persisting supply shortages and rising inflation. Fiscal policy has to balance gradual tightening with providing well-targeted temporary support to households who are vulnerable to rising costs of living, supporting growth and addressing significant investment needs. Accelerating progress towards net zero is fundamental to enhance energy security. The United Kingdom is among world leaders in reducing domestic greenhouse gas emissions, has a strong institutional framework and a broad political consensus supporting the target to reduce net emissions to zero by 2050. Continuing progress towards carbon neutrality requires policy to match ambition. Expanding pricing instruments is an essential building block to reach targets, but can be even more effective if complemented by well-designed sectoral regulation and subsidies, and more acceptable if implemented once energy prices have started to come down from historically high levels. Policy reforms to support economic reallocation, compensation of low-income households and investment in green infrastructure and new technologies can stimulate productivity growth, contribute to reducing disparities across UK regions and increase public support for climate policy.
SPECIAL FEATURE: REACHING NET ZERO
Also available in: French
Executive summary
The UK economy recovered to the pre-pandemic level by the end of 2021, following an unprecedented contraction in 2020 (). A quick vaccination rollout in 2021 allowed a gradual lifting of restrictions. As the economy started to recover at a rapid pace, supply and labour shortages worsened on the back of rising global demand and higher shipping costs. Price pressures rose significantly, aggravated by surging global energy prices following Russia’s invasion of Ukraine. Increased barriers to trade and migration resulting from leaving the European Single Market and Customs Union likely added to supply constraints. Amid persisting supply shortages and rising inflation growth has started to slow down.
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