Context 1: Globalisation and Domestic Stability

Extract A: Inflation Rates (CPI Annual % Change) in Selected Economies, December 2021 and December 2023

Extract B: Has the era of hyper-globalisation run its course?

The recent disruptions in global supply chains, from pandemic bottlenecks to geopolitical tensions in Eastern Europe and the Red Sea, have led some analysts to declare the 'end of globalisation'. However, many economists suggest that rather than dying, globalisation is simply mutating into 'reglobalisation' or 'friend-shoring'—where trade shifts toward politically allied nations. While these developments have contributed to the recent surge in global inflation, they also underscore the profound interdependence of modern economies.

In the UK, the vulnerabilities of being a highly integrated island nation were laid bare as import costs soared. The Bank of England raised interest rates rapidly to curb inflation, which peaked at over 11% in late 2022, causing a severe cost-of-living crisis. Yet, some economists argue that the long-term structural benefits of globalisation remain intact. The UK continues to be a global hub for financial and professional services, sectors that rely heavily on international capital flows, cross-border data transfer, and high-skilled migration.

At the same time, critics point out that globalisation has contributed to regional inequalities within the UK, hollowed out domestic manufacturing, and made the economy highly susceptible to foreign supply shocks. Cheap energy and low-cost goods from abroad previously kept inflation low, but this dependence created a fragile economic model. The debate remains: does globalisation build resilience through diversified global markets, or does it leave national economies dangerously exposed to systemic shocks beyond their control?

Increased integration has undoubtedly bolstered the UK's service-led growth over the last two decades, providing vital exports and attracting massive foreign direct investment, despite the supply-chain vulnerabilities and domestic inequalities it has accelerated.