- UK economy a key election issue
- Conservative tenure marked by economic slowdown
- Productivity growth lags behind global peers
As the United Kingdom prepares for a general election on Thursday, one subject has become particularly important to voters: the status of the economy.
The UK’s economy has slowed significantly since the Conservative Party took control 14 years ago.
When the immigration-driven population increase and the years preceding the global financial crisis are considered, the slowdown becomes even more pronounced.
According to research released earlier this month by the Resolution Foundation think tank, gross domestic product (GDP) per capita increased by only 4.3 per cent between 2007 and 2023, compared to 46 per cent growth over the previous 16 years.
According to the report, this is the lowest growth rate since 1826.
While UK Prime Minister Rishi Sunak claims the economy has “turned a corner” with more growth and lower inflation, Britons are expected to vote for the Labour Party, led by human rights lawyer-turned-politician Keir Starmer, over the Conservatives.
Why is the UK economy performing so poorly?
Above all, the UK’s economic problems may be traced back to its poor record of productivity development.
Productivity increase, or workers’ ability to produce more with less, is the primary driver of economic expansion and rising living standards.
Under the Conservatives, the UK’s productivity growth has trailed far below that of its counterparts.
According to the Resolution Foundation, GDP per hour worked climbed by an average of 0.6 per cent per year in the 2010s, compared to 2.2 per cent in the decade preceding the financial crisis—the lowest performance among the Group of Seven nations, except Italy.
According to OECD data, GDP per hour worked in the UK increased by approximately 6% between 2007 and 2022, compared to 17% in the United States, 12% in Japan, and 11% in Germany.
What does this entail for ordinary people?
The result is that British earnings have stagnated.
According to a disposable income analysis by the impartial research institute Centre for Cities, Britons had, on average, 10,200 pounds ($12,950) less to spend or save between 2010 and 2022 than they did between 1998 and 2010.
What is the cause of the UK’s productivity gap?
The UK’s productivity gap has been commonly linked to years of chronically low investment compared to other affluent nations.
According to a PwC analysis of World Bank data, the UK’s investment spending from 2017 to 2021 was comparable to 18% of GDP, compared to 25% in Japan, 23% in France, and 21% in the United States.
These problems are a symptom of a core issue, namely low investment by the state and business,” says David Spencer, head of Leeds University Business School.
Years of austerity have created impediments to progress; by decreasing the scope and efficacy of social and economic infrastructure, they have actively inhibited growth. Private enterprises have been overly focused on profit at the expense of investing capital and people. As a result, the UK’s economy has low growth, productivity, and wages.
Will there be economic growth in the UK?
While the UK economy has struggled to some level for over a decade, there have been some encouraging signals in recent years.
The economy emerged from the recession earlier this year, with GDP rising by a better-than-expected 0.7 percent in the first quarter and inflation remaining at around 2 percent.
Some estimates predict that the UK will outperform its peers in the following years.
The International Monetary Fund (IMF) forecasts that the UK’s GDP per capita will expand by 6.2 per cent between 2024 and 2029, outpacing every other G7 economy except the United States and Japan.
How will the United Kingdom achieve economic growth?
The UK’s long-term prospects ultimately depend on its ability to close the productivity gap.
In its analysis, the Resolution Foundation called the UK’s ability to enhance productivity “a silver lining, if not a silver bullet”.
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According to the think tank, productivity, measured by GDP per hour, is 13-19% greater in the United States, Germany, and France, indicating considerable productivity gains that the UK may aim for.
Indeed, if the UK matched the average output of these countries, productivity would increase by 17%.
Spencer believes that transforming the UK economy will necessitate significant policy changes.
As always, it is easier to talk about change than to implement it, but change is possible with the appropriate commitment and policy mix from the government.
