Much has been made of the UK economic recovery following the 2008 financial crisis which brought much of the world to its knees. As sub-prime mortgages and dodgy banking caused much of the global economy to shrink, so did the UK’s economy, causing massive cuts in public funding and a great deal of public pain. With all that being said, the UK economy has seen growth in every quarter for two years now and tax receipts are up higher than the government expected them to be. That’s excellent news for the recovery, but that’s hardly the full story. In this short piece I’ll outline five of the things you should keep in mind about the UK recovery.
- It’s slowing
As previously mentioned, the UK economy has seen 8 consecutive quarters of growth, but that doesn’t show what’s really been going on. Firstly, it’s important to note that growth has never been more than 0.9% in a quarter, and has been broadly patchy. Going from 0.6% in Q1 2013 to 0.7% in Q3 of that year, followed immediately by a drop to 0.4%.
Perhaps of most importance is this last quarter saw the sharpest drop in growth since mid-2012. Q4 2014 saw 0.8% growth, whilst the first quarter of 2015 saw a drop to 0.4%. Banks are under the belief that this is only a temporary blip on the road to strong growth in the future, but it proves that the UK still isn’t completely out of the woods. Needless to say, the Q2 2015 numbers will be of extreme interest.
- Wages are only now improving
Wages are now rising again in real terms after falling consistently since Q1 2008 because inflation was higher than what small pay growth there was during the downturn. The return to growth is largely down to inflation being close to zero rather than any major rises in wage. Pay growth was at 2.7% in the three months to April. ONS figures showed that British households are still £500 per year worse off than they were before the financial crash in 2008.
- The UK is a top G7 performer
It’s not all bad news though, because the UK is one of the top performers in the G7 group of industrialised countries. That might not sound terrifically impressive, but when you consider that the group includes France, Germany, Italy, Japan, Canada and the United States as well as us, you begin to understand what an achievement that is. Indeed, only the United States had greater International GDP growth. It’s an important achievement for the UK, but one which could be destabilised by the Greek crisis.
- Productivity is stagnant
Despite experiencing stronger growth than much of the G7, the UK’s productivity per hour has been lacking. Over the last 7 years, productivity hasn’t gone up at all, which means that whilst more people are in jobs, their output hasn’t increased. Economists are warning that this could mean that the country struggles to raise living standards.
- Growth remains in the south, largely
For all the talk of a ‘Northern Powerhouse’ by the Chancellor George Osbourne, growth has been largely focussed in the South. Indeed, the only areas of the UK where gross value added per head are in the South East and in London, everywhere else is down. The government seem keen in changing this poor record, but with London’s house prices soaring and more and more businesses being sucked into its pull, it’ll be no easy task.