In recent decades, the UK’s GDP growth averaged between the US and the eurozone. But that has changed. Britain’s post-pandemic recovery has been notably weak.
The UK is now in recession. Britain’s output already shrank by 0.2% in the three months to September. That compares with 0.2% growth in the eurozone, with France and Germany’s output growing by 0.2% and 0.3% respectively. In the US, the economy grew by 0.6% in the same period.
The UK will only return to its pre-pandemic growth level by the end of 2024. Total economic output in the UK was still 0.4% lower than pre-pandemic by the end of September.
The US economy, by contrast, is already 4.2% above its pre-pandemic level, while eurozone GDP is 2.1% higher relative to the end of 2019.
The UK labour market is “incredibly tight” compared with many of its international counterparts. Having fewer workers to spare may fan the flames of inflation, as employers increase wages to attract and retain staff. But there is another problem in Britain: people of working age falling out of the labour market. And Brexit doesn’t help!
The UK’s latest data for the three months to September showed 3.6% unemployment. It is set to peak at 5% in 2024, according to the International Monetary Fund’s October forecast. This is just under the 5.4% predicted for the US, and lower than expectations for France, Italy and Canada, but higher than the 3.2% expected in Germany.
The inflation game has fundamentally changed. The latest figures show inflation reached a 41-year high to 11.1% in October 2022. Inflation was 10.6% for the eurozone.
Most big central banks are raising interest rates in order to combat global inflationary pressures as Russia’s war in Ukraine has disrupted energy markets, and following the Covid-19 pandemic. Yet while some economists expect the Bank of England to hike its base rate, which feeds through to mortgages to 4% next year, the European Central Bank is set to raise its key deposit rate to only about 2.5%.
The UK is roughly in the middle of the pack if you compare productivity growth to other major economies from 2011 to 2019. This is a measure of the output of a worker per hour. It’s a form of growth that does not drive up inflation, and therefore a top aim for policymakers. The UK’s productivity rose 0.7% from 2011-19, the same as France and Germany, and ahead of Japan at 0.4%, but slightly lower than the US and Spain at 0.8% and 0.9% respectively. But a big driver of sluggish productivity growth has been the catch-22 of the need to boost growth with bold spending commitments. That the U.K. cannot do because it will rile the markets.
The U.K. under Tories (over 12 years) have seen a drop in the standard of living and an increase in the cost of living. Wage rates have been compressed because of the fallacy that it may accelerate inflation. Wage earners have suffered during Covid-19 with a wage freeze. Now many face double digit inflation. Rishi Sunak has to address wage increases to manageable levels of 5-8% or face continuing industrial action by almost all sectors of the economy. The Tories can’t be right if everyone is suffering! The rich and those businesses making bumper profits must be subject to windfall/higher graduated tax to finance any wage increase. Othewise, it is gloom and doom – and you can have Liz Truss back to bury the U.K. for good!
Reference:
How Britain’s economic woes stack up against Europe’s – a close look at the figures, Anna Isaac, The Observer, 19 November 2022
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