As the United Kingdom gears up for a general election on Thursday, one issue has emerged at the forefront of voters’ minds – the state of the economy.
Since the ruling Conservative Party entered office 14 years ago, the UK’s economy has slowed dramatically.
The slowdown is particularly stark when immigration-driven population growth is accounted for and the period before the start of the global financial crisis is included.
Gross domestic product (GDP) per capita grew just 4.3 percent from 2007 to 2023, compared with 46 percent growth over the previous 16 years, according to research released earlier this month by the Resolution Foundation think tank.
That is the lowest growth rate since 1826, according to it.
While UK Prime Minister Rishi Sunak has insisted the economy has “turned a corner” amid a return to growth and falling inflation, Britons are projected to dump the Conservatives in favour of the Labour Party, led by human rights lawyer-turned-politician Keir Starmer.
Why has the UK economy performed so poorly?
Above all, the UK’s economic troubles can be traced to its dismal record on productivity growth.
A rise in productivity – the ability of workers to produce more with less – is the key driver of economic growth and improving living standards.
The UK’s productivity growth has badly lagged its peers under the stewardship of the Conservatives.
GDP per hour worked increased by an average of 0.6 percent annually in the 2010s, compared with 2.2 percent in the decade before the financial crisis – the worst performance among the Group of Seven economies except for Italy, according to the Resolution Foundation.
According to OECD data, GDP per hour worked in the UK grew roughly 6 percent from 2007 to 2022, compared with 17 percent in the United States, 12 percent in Japan and 11 percent in Germany.
What does this mean for common people?
The upshot is that Britons’ incomes have stagnated.
Britons had on average 10,200 pounds ($12,950) less to spend or save in total during 2010-22 compared with 1998-2010 growth rates, according to an analysis of disposable incomes by the nonpartisan research institute Centre for Cities.
What has caused the UK’s productivity gap?
The UK’s productivity gap has been widely attributed to years of chronically low investment relative to other developed nations.
The UK’s investment spending from 2017 to 2021 amounted to the equivalent of 18 percent of GDP compared with 25 percent of GDP in Japan, 23 percent in France and 21 percent in the US, according to a PwC analysis of World Bank figures.
“These problems are a symptom of a core issue, namely low investment by the state and by business,” David Spencer, the head of Leeds University Business School, told Al Jazeera.
“Years of austerity have created barriers to growth – indeed, by reducing the extent and effectiveness of social and economic infrastructure, they have actively suppressed growth. Private businesses have remained too reliant on making profit at the expense of investing in capital and people. The result is that the UK finds itself in a low growth, low productivity and low wage economy.”
Will there be economic growth in the UK?
While the UK’s economy has struggled to one extent or another for more than a decade, there have been positive signs to point to more recently.
The economy exited recession earlier this year, with GDP growing a better-than-expected 0.7 percent in the first quarter and inflation on target at about 2 percent.
Some forecasts envision the UK outperforming many of its peers in the coming years.
The International Monetary Fund (IMF) has projected that the UK will see GDP per capita grow 6.2 percent between 2024 and 2029, which would be faster than every other G7 economy apart from the US and Japan.
How will the UK achieve economic growth?
The UK’s long-term prospects will ultimately depend on its ability to close the productivity gap.
The Resolution Foundation in its report described the UK’s potential to boost productivity as “a silver lining, if not a silver bullet”.
“Productivity, as measured by GDP per hour, is 13-19 percent higher in the US, Germany, and France, indicating significant productivity gains that the UK can aim for,” the think tank said.
“Indeed, if the UK moved to the average productivity of these countries, this would result in a boost in productivity of 17 percent.”
“It will take a major change in policy to transform the UK economy,” Spencer said.
“As ever, it is easier to talk about change than achieve it, but with the right commitment and policy mix from government, change can be achieved.”