UK: a corrugated economy
- Paul Temperton
- Mar 14
- 2 min read
UK
Corrugated economy
The UK’s Labour government, in power since July 2024, aims to solve the UK’s main problems by generating higher economic growth. UK GDP growth has been weak since the global financial crisis of 2008/9, averaging just 0.8% per year. From month to month, the pattern is one of corrugated growth: up one month, down the next.
If that erratic pattern could be overcome and growth raised to, say, 2% p.a., more jobs would be created, more government revenue would be generated and the UK’s standing in the world could be rerated.
But there is no magic wand that can be used to generate faster growth. Fundamentally, growth depends on two trends: the number of workers and how productive they are. The trend with both is not encouraging.
How many workers?
It is true that the UK population is continuing to increase. That is almost entirely due to net immigration. The natural rate of increase - births minus deaths - has ground to a halt and is forecast to remain close to zero on the United Nations’ population projections for many decades. The ONS estimates that net migration in the year ending June 2024 was 728,000: more than one percent of the population. But the UK is actively discouraging immigration. Visa restrictions, including a ban on most family members of students and care workers, and higher salary thresholds for private-sector workers seeking to move to the UK are among the measures being used. There has also been a decrease in immigration on humanitarian visas, such as for Ukrainians and Hong Kongers.
Productivity
Growth of productivity (GDP per hour worked) ran at 2% p.a. before the global financial crisis of 2008/9. Since then, it has averaged 0.4% p.a. Part of that reflects low rates of investment, especially since the Brexit vote in 2016. The government plans to stimulate investment through public sector support for private sector initiatives, especially through a freeing up of the planning system. There will be direct government spending as well, notably on housing and green investment. But the scope for expansionary fiscal policy is very limited and a shortage of workers will hamper public sector investment projects (notably on housing, where the target of building 1.5 million homes during the government’s five-year term looks highly unrealistic).
Weak, corrugated growth is likely to continue. For two articles on the problems of generating more growth see this article by Paul Johnson at the IFS:
and this one by Daniel Susskind at the LSE https://www.ft.com/content/06363b83-3f17-48aa-b111-19851ed227b8?shareType=nongift