“Britain is coming back,” said George Osborne, after the first GDP estimate for this year showed another quarter of 0.8 percent growth. It’s better news than we have had for years and the ONS press release was suitably upbeat too, pointing out that GDP is now only 0.6 percent below where it was before the recession.
For a more sober take, though, read this paper on GDP they published last week. It covers some of the same themes I wrote about a couple of weeks ago. They use OECD and Eurostat rather than IMF data but the patterns are similar. If I’d waited, I could have nicked their graphs instead of making my own.
Although the UK is now close to its pre-recession GDP, everyone else in the G7, apart from Italy, is already back to where they were before the crash. Despite having slumps as severe as ours, Japan and Germany have both recovered their pre-recession GDP, which Britain is not set to do until sometime this year.
The figures for per capita GDP are even less flattering, with the UK lagging behind the Eurozone average and still nowhere near restoring the pre-recession position.
The paper also has some interesting observations on the financial services industry, which grew rapidly during the 2000s, far more so, relative to the size of the economy, than in any other G7 country.
Financial services has often been described as the goose that laid the golden egg, powering the UK’s growth in the 2000s and providing the government with tax revenues. Unfortunately, this was also the industry that triggered the recession so our economy took a particularly big hit, something we saw reflected in our meteoric rise up the debt league table.
Source: OECD Economic Outlook 94
The trouble is, our financial services industry’s performance is still way below its peak.
Given the size of Britain’s financial services industry in 2008, and its rapid fall, it was never likely that it would restore its pre-recession performance. Of course, part of the reason for this is that we, through our elected representatives, have said that we don’t want it to go back to doing what it was doing in 2007. Getting tough on bank regulation is one of the few areas where there is general political consensus.
To stretch the analogy, then, the goose got sick, left us with a big vet’s bill and hasn’t done as much laying since. The problem is, we haven’t found anything else to replace it. Despite all the talk of rebalancing the economy, that can only happen if there is investment in other industries, which there hasn’t been.
In its Green Budget, the IFS attributed most of the growth in 2013 to consumer spending describing business investment, or the lack of it, as a drag on growth.
Here, again, the international comparisons show the UK lagging behind most of the G7 and the major emerging economies.
With the government cutting its spending, financial services a shadow of its former self and no-one else investing, it goes some way to explaining why the recovery has been so weak, both by international and historical standards. It also explains why so many people have gone out and created their own jobs.
As Ross Finley of Reuters pointed out yesterday, the UK is sprinting faster than other major economies but that’s because it is playing catch-up. Question is, how long can it keep this up?