Answer :
Final answer:
The UK will avoid a technical recession this year due to measures taken to address post-Brexit labor shortages, efforts to increase employment among inactive working-age individuals, and the need for more workers to revive output. The stagnation of UK labor productivity since 2008 has also played a role, preventing real wage growth and making the country vulnerable to rising living costs. The chancellor's decision-making is influenced by higher public borrowing costs, the need to prioritize spending and tax breaks for key voter groups, and the government's electoral revival.
Explanation:
The UK is expected to avoid a technical recession this year despite facing various challenges. While a 0.2% drop in the size of the economy in one quarter might be considered a recession by most people, the chancellor's announcement suggests otherwise. The International Monetary Fund (IMF) forecasts that the UK will be the only major economy to contract in 2021, highlighting the severity of the situation.
One reason for the UK's ability to avoid a technical recession is the government's response to post-Brexit labor shortages. Measures have been implemented to encourage more of the eight million inactive working-age people, including those sidelined by health problems during the pandemic, to enter paid employment. By increasing the workforce, the government aims to revive output and address the stagnation of UK labor productivity since 2008.
The stagnation of labor productivity has had a significant impact on the UK's economic growth. It has prevented real wage growth and made the country vulnerable to rising living costs. To counter these challenges, the chancellor faces the need to prioritize spending and tax breaks for groups whose votes are crucial for the government's electoral revival.
Furthermore, the UK's economy is experiencing supply chain fragility and a wave of strike action, further complicating the economic landscape. However, the government's efforts to address labor shortages and revive output contribute to the avoidance of a technical recession.
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