JULY 2026
10 Downing Street will soon welcome its seventh Prime Minister in just a decade; an unprecedented pace of political turnover in modern Britain.
While Brexit and the pandemic are often cited as the key drivers of this instability, the real cause is the UK’s deteriorating fiscal position.
The chart below compares the annual budget deficit (blue bars) with the stock of government net debt as a percentage of GDP (red bars).
Although deficits have been a persistent feature since the 1970s, total debt remained broadly stable at 20–30% of GDP for several decades.
This changed following the 2008 financial crisis, and then again after Covid, pushing net debt to around 80% of GDP and leaving deficits entrenched around -5%.
The consequence has been prolonged economic stagnation, rising social pressures and persistent political churn in Westminster.
A credible, growth-led strategy (rather than renewed austerity) may offer the new Prime Minister the best chance of breaking this cycle.
Whether it can be delivered remains to be seen.
One of the clearest drivers of the UK’s economic stagnation has been weak productivity growth, particularly relative to other major economies such as the US.
The chart highlights a stark divergence since the 2008 financial crisis with US output per worker hour rising steadily, whilst the UK equivalent has largely flatlined.
This gap reflects a combination of weak business investment, persistent skills shortages, and regulatory and planning constraints that have weighed on economic activity.
Reversing this trend is central to any credible UK economic strategy as even modest improvements in productivity growth would have powerful cumulative effects on GDP, tax revenues and debt sustainability.
There is no shortage of policy options, but the most compelling revolve around a sustained upturn in public and private investment in infrastructure, digitalisation and AI adoption.
At the same time, a renewed focus on skills, vocational training and labour market participation would help address structural bottlenecks.
Taken together, these measures offer the new Prime Minister a viable path to closing the productivity gap and, over time, easing the UK’s substantial fiscal constraints.
The UK housing market sits at the heart of the country’s economy with homebuilding a critical driver of GDP.
The chart shows that, despite periodic upswings, housing starts and completions have struggled to sustain a meaningful uptrend in recent years.
Chronic undersupply reflects a combination of restrictive planning rules, limited land availability and developer constraints. The result has been a subdued construction sector that weighs on the wider economy.
Yet a sustained recovery in housebuilding would provide a powerful boost to GDP, employment and supply-side capacity across the country.
In policy terms this means meaningful planning reform, faster approvals and incentives for local authorities to support development that helps to unlock land supply and accelerates project pipelines.
The new Prime Minister will recognise that such steps could catalyse a housing-led growth cycle that offers a clear and tangible path to re-energising the UK economy.
External trade represents an underappreciated pathway to a stronger, more sustainable expansion for the UK economy.
The chart shows that sterling’s real effective exchange rate is currently trading around the lower end of its long-run range, suggesting UK goods and services are relatively price competitive on the global stage.
In principle, this should provide a tailwind to exports, supporting manufacturing, services, and inward investment.
Yet this advantage has not been fully realised in recent years, reflecting structural frictions and subdued global engagement post-Brexit.
A more outward-looking trade strategy could therefore play a meaningful role in lifting growth over time, particularly if supported by targeted policy measures such as reducing non-tariff barriers, strengthening trade partnerships and improving export support for UK firms.
Combined with domestic reform, a more competitive and outward-facing economy would give the new Prime Minister a credible chance of reversing years of stagnation and political uncertainty.
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