Dwindling Fortunes of the UK Economy: What does it mean for Nigeria, Nigerians and the Naira

The British Empire, with its vast merchant ships, dominated trade, hauling valuable minerals and human labor across continents.

London’s financial districts at the time also set the pace for global economic trends, making the UK the economic superpower of its time.

So influential was its financial prowess that a common phrase at the time suggested that if the UK’s economy ever faltered, so would the rest of the world.

100 years on, and that narrative has changed considerably. Particularly over the past decade. The UK economy, like most, has struggled with economic downturns, inflationary pressures, and fiscal instability, teetering between recession and minimal growth, but with recent figures painting an even bleaker picture.

Despite its decline, the UK remains an essential player in an intricately woven global economic landscape. The country’s exports of financial and business services contribute significantly to its balance of payments, with London remaining one of the world’s 3 major financial hubs, alongside New York and Tokyo, thus impacting various economies, including Nigeria’s.

The UK economy’s performance over the past few years highlights its dwindling fortunes. In 2024, it grew by a mere 1.1%, following a growth of 0.4% in 2023. Sharp declines from the rebounds of 4.8% in 2022 and 8.6% in 2021 after the devastating 10.3% contraction in 2020 due to COVID.

The FTSE All Share Index (FTSE) provided a total 2024 return of 9.5%, marking, arguably, its best performance since 2021 (+18.4%).

However, UK Gilt (bond) prices have declined, while yields have soared, reflecting weaker investor confidence.

On the trade front, the country has dipped in and out of trade surpluses and deficits over the last decade. In 2024, the country recorded a deficit of £28 billion. Though better than its £53billion for 2023, its deficit over the years signals an economic imbalance that is beginning to have far-reaching consequences on global trade dynamics.

With Nigeria’s close economic ties with the UK, therefore, mean any downturn in the British economy will certainly have repercussions at home. And with the global economy already under strain from recent issues as trade restrictions and geopolitical tensions, a further slump in the UK could be detrimental, particularly for emerging markets like Nigeria.

Diaspora remittances constitute a significant portion of Nigeria’s foreign exchange earnings. In 2024, Africa received $100 billion in remittances, with Nigeria and Egypt accounting for nearly half. Nigerians living in the UK contributed nearly half (~£9.3billion) of the nearly $22billion in total remittances received in 2024.

Diaspora remittances constitute a significant portion of Nigeria’s foreign exchange earnings. In 2024, Africa received $100 billion in remittances, with Nigeria and Egypt accounting for nearly half. Nigerians living in the UK contributed nearly half (~£9.3billion) of the nearly $22billion in total remittances received in 2024.

Should the UK economy consequently fall into a feared recession, job losses and reduced wages for Nigerians in the UK would almost likely lead to sharp remittance declines, such that a mere 5% drop would result in an approximate loss of £465 million to Nigeria, thus having grave effects on foreign reserves, and effecting a further Naira depreciation. This will also reduce household consumption, with a devastating impact on our GDP numbers.

The UK is also one of Nigeria’s top trading partners. In 2023, total trade between both nations was valued at £7.8 billion. Nigeria’s exports to the UK amounted to $2.29billion, mainly crude petroleum ($1.64billion), refined petroleum ($317million), and petroleum gas ($261million). Meanwhile, the UK exported goods worth $1.91billion to Nigeria, including refined petroleum ($1.11billion), machinery, and processed cereals.

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If Nigeria’s purchasing power were to consequently decline due to the UK’s feared economic downturn, a 5% reduction in trade value would result in a £390 million contraction in trade flows, thus, making imports more expensive, straining Nigeria’s trade balance, reducingtrade revenue, and intensifying forex scarcity, and further fueling inflation.

In Q1 2024, total capital importation into Nigeria stood at $3.4billion, a 198% increase from Q1 2023. Capital Importation during the reference period originated largely from the United Kingdom with US$1,8billion, representing 53.49% of total capital imports.

A weaker UK economy would subsequently reduce British investments into Nigerian capital markets, leading to lower liquidity and potentially triggering an FPI sell-off. Similarly, Nigerian bond yields could rise, making it more expensive for the government to pay off its debts amid tightening forex reserves.

Compounding the UK’s economic woes are growing geopolitical and fiscal concerns. A significant member of NATO, the UK grapples with ongoing tensions with Russia as its war with Ukraine continues to place economic and fiscal burdens on its budget. With GDP growth projected to be only 1% in 2025 and 1.8% in 2026, the UK now seeks to balance domestic economic recovery with increasing military commitments, to itself and Ukraine.

Additionally, education exports, particularly tuition fees from Nigerian students, which form a crucial component of the UK economy, could suffer if fewer Nigerians can afford to study in the UK.

Given the current global economic landscape, Nigeria must consequently take proactive steps to mitigate potential risks associated with a potential UK economic downturn. These must include;

The economic decline of the UK is not an isolated event but a potential disruptor to Nigeria’s economic stability. With dwindling remittances, shrinking trade, and heightened forex pressures, Nigeria must stand prepared for the ripple effects.

By diversifying trade relationships, increasing local production, and reinforcing its financial markets, Nigeria can build resilience against external economic shocks and hopefully achieve its ambitious $1 trillion GDP target by 2030.