In the next five months we will hear a lot about the strength of the UK recovery since 2013. Forget 2011 and 2012, certain people will say, it is finally coming good. To assess the validity of these claims, we can look at the latest ONS data for output per capita. It is important when comparing this recovery to previous experience to use GDP per capita rather than GDP, because population growth has been much more rapid in the last decade compared to the previous three. GDP per capita rather than GDP is a more relevant measure of average living standards. Here is the annual growth in UK GDP per head since 1980 (source: ONS).
The recession of 1980/81 was followed by years of over 2% growth. The ‘ERM recession’ likewise. In contrast, after the 2008/9 recession we have had a very weak recovery. Even growth in 2013 is well below the 1971-2007 average of around 2.2%. Only in 2014 do we seem to have got back to trend. Here are recently quarterly growth rates.
The trend quarterly growth rate is about 0.55%, so only in the last two quarters is there even a hint of exceeding that trend. So the best that can be claimed about growth so far is that we have in the last two years managed to return to trend growth. We have made no progress in getting back the ground that we lost in 2010-12, let alone recoup the ground lost in the recession.
Isn’t this true elsewhere? Only if we look at the Eurozone, which in 2013 also had levels of GDP per capita well below 2007 levels. In the US and Japan GDP per capita exceeded 2007 levels (just). So the UK has matched Eurozone performance, but without having to contend with an existential funding crisis.
Now maybe it might still be worth talking up the recovery if it included the promise of better times ahead. This could be the case, for example, if it had occurred despite a large rise in consumer savings, or because of a strong increase in net exports. Unfortunately in both cases the opposite is true: the current savings ratio appears pretty low, and our trade performance has been poor despite the depreciation during the crisis. This change in the terms of trade has also made consumers poorer than the GDP numbers would suggest.
So even if we exclude the years 2011 and 2012, this looks like a below par recovery by most standards. Economists who suggest otherwise are looking at their prejudices rather than the data. To what extent this is down to the government or something else is another issue. What it does suggest is that the government should be explaining why they have been unlucky, rather than boasting of their success.