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Whilst growth has been disappointing it still bears comparison with other UK recessions
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Growth since summer 2010 has not been as bad as numbers suggest
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UK hit hard relative to other economies due to high dependence on financial services
The prospects for economic growth in the UK are not as bad as some commentators would have us believe. Whilst growth has been disappointing in comparison with other economies, particularly in recent quarters where it seems to have stalled, it still bears comparison with other UK recessions. Economic recovery was not smooth following the recessions of either the early 80s or early 90s. Indeed the history of the 1991 recession shows a classic ‘two steps forward, one step back' recovery with the level of GDP returning to its lows three quarters after hitting its nadir*.
Therefore the pause in growth witnessed since November 2010 is far from without historical precedent. Additionally, there is some doubt that growth since last summer has been as bad as numbers suggest; the construction industry GDP data in particular shows activity levels far below those that other indicators would suggest.
What is also clear, however, is that whilst the speed of the recovery has been of a similar magnitude to the last two recoveries, it has been very poor relative to the decline in GDP running into the recession. The recovery in the early 90s may have been relatively slow, but the decline in growth from the previous peak was also slow (the economy declined by 2.5% in the 90s recession compared with more than 6% recently**). In the recent recession, the UK has also been poor in terms of international comparisons.
Nigel Bradshaw, economist at LV= Asset Management said: "Both Germany and the US have experienced much stronger rebounds in growth with both economies now having recovered all their lost output. It seems likely that this is a result of the origin of this recession which arose from problems in financial markets. This hit the UK economy harder relative to others because of its high dependence on financial services. In addition the fact that, in GDP terms at least, the financial services sector employs the most productive workers was detrimental to the UK. It also goes some way to explaining why unemployment has not risen to the extent that might have been expected.
He added: "Looking forward the story has not changed. Growth will persist, albeit at sub-trend levels whilst the economy has to battle the headwinds of fiscal tightening and strong externally generated inflation. These effectively act as a further tax on consumers, although the recent setback in commodity prices will be helpful if it persists."
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