Britain has emerged from the pandemic with most economic indicators flashing red. The prospects for the UK economy have weakened this year and next in response to the Russian invasion of Ukraine, a messy divorce process from the EU that remains unresolved and global supply chain blockages hitting many business sectors. Following Boris Johnson’s departure, a new government will need to release itself from former chancellor Rishi Sunak’s spending constraints to ease the inflationary pressures on households while preventing a possible slide into recession with extra support for businesses. Here are the main economic issues ministers will need to confront. Inflation The consumer prices index has jumped from almost zero during the pandemic to 9.1% and is forecast to top 11% by October when rising energy prices push average combined gas and electricity bills above £2,800 a year. Most economists believe the growth in prices will ease next year, but their forecasts depend on the war in Ukraine ending. Brent crude almost doubled in price to $128 a barrel in the year before Russia’s invasion of Ukraine, before slipping back – it was $102.5 on Thursday. GDP Britain suffered the biggest fall in national income (GDP) since the early 18th century when the economy was mothballed in April 2020. It bounced back rapidly, but the recovery slowed this year as the global economy began to stutter. The UK imports more than half its food and the majority of its gas and oil, making it especially vulnerable to global shocks. The next official figures for GDP, for May, are expected to show a third consecutive month of contraction. The UK economy is only 0.9% bigger than it was in November 2019. Tax burden Ministers face pressure from backbench Tory MPs to reverse the Johnson administration’s plans to increase taxes on businesses and households over the rest of the parliament to pay for spending during the pandemic. However, the scope for tax cuts is limited, especially when many Conservatives are also urging the government to increase the defence budget in the face of the renewed threat from Russia. The likelihood of further economic shocks and an ageing population will further add to calls for extra cash from the exchequer. UK trade France and Britain have tracked each other for decades in charts showing the value of trade as a percentage of GDP. The global post-pandemic recovery last year lifted all boats. However, recent figures have shown Britain’s trade stagnated while France’s position has improved dramatically. Brexit is blamed by many economists for the UK’s less rosy outlook. In its latest assessment, the Institute of Export & International Trade said total export revenues dropped across the UK by 2% from the previous month, “highlighting the struggles businesses are facing as a result of the pandemic, supply chain crisis, Russia-Ukraine conflict, and Brexit”. UK workforce Official estimates show the UK has about 1.2 million fewer workers in 2022 than was expected in 2019. Many EU workers returned home during the pandemic, older workers took early retirement and tens of thousands of students returned to education. David Miles, the Office for Budget Responsibility’s main economic adviser, said it was likely some older workers and many students would return to the labour market, but it was reasonable to judge that the UK had suffered a permanent drop, leading to sustained labour shortages in some industries. Brexit and Covid have also combined to reduce the number of workers seeking employment, pushing up wages and hindering recovery. R&D spending Science spending has tumbled and a promise to increase the funds for research and development remains just that – a promise. Sunak planned to increase UK R&D spending to 2.4% of GDP, up from 1.74% last year. France already spends 2.2% of GDP, the US 3.1% and Germany 3.2%. The chancellor initially wanted to achieve this by 2025, but earlier this year he pushed the date back to 2027. This article was amended on 8 July 2022 because an earlier version mistakenly said that the UK imports most of its energy. It meant to say the UK imports the majority of its gas and oil.