The UK economy is emerging 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
13 May 2024 Monday 05:25
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The UK economy is emerging 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 celebrate victory with 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 Union European (0.3%) in this same period. The Labor opposition, on the other hand, emphasizes the fact that GDP per capita is 1.2% lower than before the pandemic, and the standard of living of citizens remains stuck.

Although quarterly growth has been slightly greater than the Bank of England and the OECD had forecast, and enough to technically exit the recession that ended last year, the structural problems that have trapped the economy in a spiral of low growth (Brexit, lack of public and private investment and skilled labor, barriers to trade, high interest rates, low productivity...).

The boost from 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 in which wages have increased more than inflation), in the manufacture of cars and in private healthcare (due to the fact that more and more families resort to it in view of the public disaster). On the other hand, construction continues to stagnate despite the chronic lack of housing and excessive rental prices.

You're half full: "We've had some difficult years, there's no doubt, but the growth figures prove that the economy is recovering to full health for the first time since the pandemic" (Jeremy Hunt, Finance Minister). As in the story of the dairy, the Government already anticipates that the Bank of England will lower interest rates a couple of times before the autumn elections, and that this will allow it to have the impact of a cut in 'taxes before the appointment with the ballot boxes.

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 a lot more, people earn on average the equivalent of €400 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 the OECD's 1%) for 2024 could be too pessimistic if the trend of the first four months of the 'year. Glass half empty: Since the pandemic, the British economy has grown by just 1.7%, less than any other in the G-7 (the US has grown by 8.7%, and the eurozone, 5.4%). Only Germany also fell into recession last year.

Most experts believe that the United Kingdom is stuck in a cycle of low growth from which it will be very difficult to get out. GDP per capita, which is the best way to measure quality of life, is 1.2% lower than five years ago, and prices are up 21% even as inflation is on track to stabilize around 2% per year (now it is 3.2%). Most people's wages haven't risen nearly as much.

Services grow, manufactures shrink. Art galleries thrive, pubs close. London, the City and the south-east of England win, the post-industrial north loses. The data from 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 more equality.

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

The conservatives' only hope for the next election is that the economy will improve, and a lot. That's why they take it like a castaway and have celebrated the quarterly economic growth data with a lap in the arena. In contrast, the Labor opposition says it is simply a mirage.