UK's Economic Growth: Stuck Between Brexit and AI Hopes

Government Budget Lacks Major Boost

The UK's economic growth is currently facing a tough situation. The government's recent budget didn't include any big plans to boost the economy. The Office for Budget Responsibility said none of the measures would add at least 0.1% to GDP over five years.

Reliance on AI and EU Trade

This leaves the UK relying on two main hopes:

• A big boost from artificial intelligence (AI)
• Better trade ties with the European Union (EU)

AI's Potential Impact

AI could help the UK's economy, especially since the country's private sector is mostly made up of services like accounting and finance. However, experts think a big jump in productivity from AI in the next few years is unlikely. The Office for Budget Responsibility predicts AI will only add 0.2 percentage points to productivity growth over the next five years.

Trade with the EU

The UK's Prime Minister Keir Starmer has started talking more openly about reducing trade frictions with the EU. He said the UK needs to accept trade-offs for a closer relationship. However, Brexit has already cut the UK's GDP by 6-8%, and even Brexit supporters now admit it has hurt growth.

Political Challenges

The UK could boost trade by:

• Rejoining the EU's single market
• Negotiating a customs union

But both options have political challenges:

• The Liberal Democrats and some Labour lawmakers support a customs union, but it would limit the UK's ability to make independent trade deals.
• The anti-EU Reform UK party, led by Nigel Farage, is gaining popularity and would oppose any move seen as reversing Brexit.

EU's Perspective

The UK's current trade agreement with the EU works well for the bloc, so it's not eager for change. The EU will also consider the risk of a future Farage-led government undoing any new deal. Starmer's recent criticism of Brexit seems more like a political strategy to target Reform UK rather than a serious move towards closer EU ties.

Conclusion

As a result, the UK's economic growth is likely to remain slow.