The challenges that the UK economy is facing are well understood, so I will be brief: even if inflation eased to 10.7 per cent this month, it is still at a 40-year high, and many households are worried about making ends meet. It is clear to economists that supply-side issues are the cause of our predicament, namely Vladimir Putin’s war on Ukraine affecting fuel prices, supply chain issues exacerbated by China’s zero-Covid policy, and trade bottlenecks resulting from Brexit. We are facing a recession, although it is perhaps not as significant a downturn as expected, on account of a 0.5 per cent increase in GDP during October.
What is less well articulated in the debate is the policy choices that underpin the situation we are in. Economists use a fancy word to think about policy choices at our disposal. We call it the “counterfactuals” – meaning what an alternative “world” would look like in the presence of alternative courses of action.
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