UK news headlines have not made for easy reading in recent months. Economic growth may be bouncing back from last year’s Covid-19-related recession, but the sight of panic buying in petrol stations, empty supermarket shelves and unpicked crops rotting in fields underline much deeper fault lines in Britain’s economy. Some 21 months after quitting the European Union, Brexit has left the UK economy in a mess – social welfare conditions are deteriorating, the health system is under serious strain and supply-chain issues are becoming a bigger problem. Longer-term growth prospects are deteriorating sharply with Britain being written off as the sick man of Europe. Britain’s “shortage economy” seems to be going from bad to worse, with too few bright spots on the horizon. Last week’s autumn statement from the government was full of promise of better times ahead, but painfully short on detail about how any post-Brexit economic renaissance will happen. Why are UK and EU still fighting over Brexit, after all this time? On the bright side, UK growth still seems to have some positive forward momentum, with gross domestic product rebounding by 5.5 per cent in the second quarter after a 1.4 per cent drop in the first three months of 2021. The economy expanded by 23.6 per cent year on year, a record growth rate following the easing of Covid-19 restrictions, and after a record 21.4 per cent contraction a year earlier when the Covid-19 crisis first hit the economy. It’s no wonder the government sounds more hopeful that the economy has turned the corner, but the worry now is how durable the recovery will be. Consumer spending, which averages around 65 per cent of GDP, received a major boost from the government’s Covid-19 relief support, but there are already signs that retail activity is cooling – retail sales were down 1.3 per cent in September from a year ago. There is a major risk overshadowing the economy: that government support, handed out so generously during the Covid-19 crisis to kick-start recovery, will be withdrawn. This may be the only way to get Britain’s train-wreck public-sector finances back into reasonable shape again. This happened in the aftermath of the 2008 crash when the government’s subsequent austerity tightening compromised the recovery. Over the next five years, the government aims to slash its budget deficit from 15.4 per cent of GDP last year to 1.8 per cent of GDP by 2026. This represents a significant fiscal squeeze on future growth prospects at a time when the economy is crying out for support. Welfare payments are being squeezed, payroll taxes are rising, and rising inflation is denting real disposable incomes. With the unemployment rate running at a relatively high 4.5 per cent in August and over a million job vacancies unfilled, it is no wonder UK consumer confidence is starting to suffer again. It is hard to envisage which other part of the economy could take up the slack. Thanks to Brexit, UK trade is suffering as exports to Europe have taken a hard knock, manufacturing output is bogged down by supply-side shortages and business investment intentions remain subdued thanks to the uncertain economic backdrop. UK business investment is still operating 12.8 per cent lower than at the end of 2019 before Covid-19 struck. The economy is in desperate need of an investment spending spree to relieve capacity constraints and encourage new job creation. British PM says lockdown ‘not on the cards’ despite surge It would be wrong to lay all the blame on Brexit and the pandemic. Britain’s structural problems remain deeply rooted, with chronic underinvestment in industry spanning many decades. On global league tables, the UK scores badly on investment performance, ranking fourth from bottom of the 38-member Organisation for Economic Co-operation and Development countries. Most parts of Britain are crying out for better transport links, more affordable homes and cleaner energy. Government policy needs to invest in vital infrastructure to boost economic growth and create good quality, skilled jobs. Structural change is long overdue. In June, the government launched the UK Infrastructure Bank, a new policy initiative in partnership with the private sector and local government to finance a green industrial revolution, tackle climate change and drive growth across the country. It’s a step in the right direction. Britain’s long-suffering shortage economy can be turned around, but it will take time and a lot more investment funding to make a difference. David Brown is the chief executive of New View Economics