Soaring inflation leaves UK struggling in international competitiveness

Amid soaring inflation, industrial relations turmoil and political scandals galore, a new report cites the UK's rank deteriorating in global competitiveness.

The Institute of Management Development (IMD) is a leading business school based in Switzerland. It has published its IMD World Competitiveness Yearbook (WCY) annually since 1989.

The WCY, whose latest edition was published earlier this month, analyses and ranks countries based on how they manage their competencies to create long-term value. Underpinning the analysis is the principle that competitiveness cannot be determined simply by GDP and productivity figures, but is also crucially impacted by the context in which economies operate.

Hence, it notes enterprises have to cope with political, social and cultural factors shaping their operating environment. Governments must provide a favourable landscape characterised by efficient infrastructures, institutions and policies that encourage sustainable value creation by businesses.

The WCY 2023 looked at 64 economies. Britain's position declined from 23rd a year ago to 29th in 2023. The negative trajectory continues from last year's report, which cited a decline from 18th to 23rd for Britain.

By contrast, Denmark, Ireland and Switzerland respectively, took the top spots. The report notes that all three are small economies that make good use of their access to markets and trading partners.

It is no surprise then, that amidst Britain's post-Brexit struggle to set up efficient trading partnerships, its position on the list has suffered.

Specifically, the report looks at four competitive factors: business efficiency, infrastructure, government efficiency and economic performance. It does this by gathering both hard data and survey data. The data comes from various international sources including from the business community, government agencies, economic literature and academics. The survey is answered by 6,400 senior executives around the globe.

The results for Britain show that government incompetence, work culture and immigration laws are the leading areas of concern as far as leading business voices are concerned. It is estimated that as a result, Britain is facing an investment gap of £560 million as global business leaders become more hesitant about its prospects.

The weaknesses in these key areas left Britain unable to compete in a world dealing with a "polycrisis" marked by inflationary pressures, unstable stock markets, the impact of the Ukraine War, energy insecurity and the lingering impacts of Covid-19.

On the cost of living, Britain was ranked near the bottom at 52nd. On the budget deficit, the UK was ranked in 58th place. On prices, it ranked last, as a result of its high and sticky inflation.

Just three per cent of Executive Opinion survey respondents said that the competency of the government made Britain attractive. Negative views of immigration laws and slipping educational standards continue a trend also seen in last year's report, which is discouraging global talent from attempting to come to the UK.

There were a few bright spots for the country, however. Some aspects of infrastructure and business landscapes did well. This showed Britain's historic strength as a financial centre – for which it still ranks highly, and in fact, is up six places to 11th.

Similarly, Britain's scientific infrastructure is also a strength, gaining five places to 14th. Finally, its health and environment infrastructure also did well, coming in at number 13.

Speaking about the results, Christos Cabolis, Chief Economist at the World Competitiveness Centre, said: "The UK's competitiveness position was affected mainly by its economic performance, high inflation rates, low employment growth and high government deficit. All of this negatively affected the business sentiment, in turn."