The UK economy emerges from recession but the take-off is timid

It's a matter of seeing the glass half full or half empty.

Oliver Thansan
Oliver Thansan
12 May 2024 Sunday 17:03
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The UK economy emerges from recession but the take-off is timid

It's a matter of seeing the glass half full or half empty. The Government has not hesitated to claim victory with the economic growth of 0.6% in the first quarter of the year, and to proclaim that it is greater than that of the United States (0.4%) and the European Union (0. 3%) in that same period. The Labor opposition, on the other hand, emphasizes that GDP per capita is 1.2% lower than it was before the pandemic, and citizens' living standards remain stagnant.

Although quarterly growth has been somewhat higher than predicted by the Bank of England and the OECD, and sufficient to technically emerge from the recession that ended last year, the structural burdens that have trapped the economy in a downward spiral remain. growth (Brexit, lack of public and private investment and qualified labor, obstacles to trade, high interest rates, low productivity...).

The momentum from the months of January to March, which seems to have continued in April according to provisional data from the National Statistics Office, responds to a greater than expected dynamism in the services sector (80% of the country's economy, and where wages have increased more than inflation), in car manufacturing and in private healthcare (because more and more families are turning to it in view of the disaster of public healthcare). On the other hand, construction remains stagnant despite the chronic lack of housing and excessive rental prices.

Glass half full: “We have had a difficult few years, no doubt, but the growth figures prove that the economy is returning to full health for the first time since the pandemic” (Jeremy Hunt, Finance Minister). As in the milkmaid's story, the Government is already counting on the Bank of England to lower interest rates a couple of times before the autumn elections, and that this will allow it the impact of a tax cut before the appointment with the polls.

Glass half empty (or almost completely empty): “The Government is gaslighting the British with macroeconomic data. If the United Kingdom has grown more than the EU and the United States in the first quarter, it is because its fall has been greater since the pandemic and it has to rise from a much lower platform. Things cost much more, people earn on average 400 euros less and live worse than when the Tories came to power in 2010” (Rachel Reeves, Labour's head of finance).

Glass half full: the Bank of England's 1.3% growth forecast (and 1% from the OECD) for 2024 could be too pessimistic if the trend of the first four months of the year is confirmed. Glass half empty: since the pandemic, the British economy has grown only 1.7%, less than any other in the G-7 (that of the United States has grown 8.7%, and that of the eurozone, 5 ,4%). Only Germany also fell into recession last year.

Most experts believe that the United Kingdom remains trapped in a cycle of low growth from which it will be very difficult to escape. GDP per head, which is the best way to assess quality of life, is 1.2% lower than five years ago, and prices have risen 21% despite inflation being on track to stabilize. around 2% annually (now it is 3.2%). Most people's wages have not increased by nearly that amount.

Services grow, manufacturing shrinks. Art galleries prosper, pubs close. London, the City and the south-east of England win, the post-industrial north loses. The data for the first quarter of the year only confirm the growing regional imbalances, despite the promises of the last conservative governments to invest in infrastructure so that there is greater equality.

Although the latest statistics are a ray of light, the estimate of independent organizations is that the economy would have grown between 4% and 6% more without Brexit, and that leaving the European Union has cost 170 billion euros so far , and caused the Treasury to receive 60,000 million euros less in taxes. Obstacles to imports and exports, especially for small and medium-sized companies, slow down trade (17% lower than in 2019).

The conservatives' only hope for the elections is that the economy improves, a lot. That is why they are grasping at straws and have celebrated the quarterly data with a return to the ring. On the other hand, the Labor opposition says that it is simply a mirage.