Read the latest Nub News column from Hitchin MP Bim Afolami as he reflects on changes to the British economy

This month I thought I would discuss what lies behind some of the major changes we are seeing in the British economy at the moment, writes Bim Afolami.

Today we seem to be at a tipping point in a long-term trend of steady prices along with growing prosperity. The moment of this change is not easy to pinpoint but there are two short term events and one long term trend that are making economic models uncertain. The two short term disruptions to the economic trend are the evil war by Russia in Ukraine and Covid. 

Russia and Covid have severely damaged global supply chains. The disruption in food supplies from Russia and Ukraine is creating enormous inflationary pressures, there is a likelihood of severe food shortages, and possible starvation in certain poorer countries in Africa in particular. The disruption to energy supplies, along with the supply of metals, from aluminium to the very rare metals and minerals needed to sustain the electronics industry and the transition to electric vehicles, is having a big impact on costs and the "greening" of the economy. 

The long-term trend of globalization is reversing. Over the last twenty to thirty years, prices have held steady and, in many areas, declined as world trade had enabled businesses to take advantage of moving production to cheaper parts of the world, mostly to Asia.  

This trend greatly encouraged by the Chinese Government's long-term strategy to industrialise the country as a way of increasing the wealth and prosperity of its people.

The trend gained enormous momentum from China joining the WTO about 20 years ago, coupled with the dramatic change in sea transportation brought about by containerization, which greatly reduced the cost of transport and enormously increased the efficiency of moving commercial products, from cars to computers.

The globalisation trend has stalled and is going into reverse as industries discover the vulnerability in the supply chains – firstly brought about by Covid, then compounded by the Russian invasion.

The trend is also being pushed in the opposite direction by US/China friction and President Xi's attack on many of the leaders of the big industrial companies; along with a growing policy trend of disengaging China from technology dependence on the West which is reducing confidence in the reliability of long supply chains.

The reversal of globalisation and the breaking down of trade relations between the East and the West may have significant inflationary consequences. We appear to be set on an upward path with all the unpleasant consequences that we experienced in the 1970's and 1980s of rapidly increasing prices. This will not be easy for any Government, anywhere in the world, to manage.  

The current significant price rises in raw materials are to a large extent the result of Russia's aggression in Ukraine exacerbated by the reversing of globalisation, in this context raising Interest rates may not have the effect that we hope (though economic policymakers seem divided on this question). The next few months will be an incredibly difficult economic context for all policymakers to operate in.