Signs of recovery in comparative UK economic growth

 

I haven’t talked about recent UK macroeconomic data for some time, mainly because there hasn’t been any new story to tell. To recap, growth in the UK relative to other comparable countries was strong in the three decades before 2010, but then the UK entered a period of relative decline, exacerbated by Brexit. In addition the UK had a terrible pandemic, not just in terms of government policy and therefore deaths but also in terms of lost GDP. The economy bounced back as it did around the world, but the ground we lost in the pandemic relative to other G7 countries was never made up.  Whether that is because of UK policy during the pandemic or the ongoing negative effects of Brexit is hard to tell. Below is a chart that ends at the end of 2023. [1]

The UK was not the worst performer over this period, with both German and Japanese GDP at the end of 2023 hardly above average 2019 levels. But next worst was the UK, with GDP at the end of 2023 just 2.5% above its 2019 average, and above us was France (4%), Italy (5.5%), Canada (10%) with the US leading the pack at over 13%.

The chart below shows what has happened from 2024 until the second quarter of this year, and I have reset the base year to 2024 to make the chart as clear as possible.

Over this period the US continues to grow more rapidly, in large part because of the AI boom in their tech sector. Next are Canada and the UK, where growth between 2026Q2 and the 2024 average was around 2.5%. Nothing spectacular, but much better than in the remaining four G7 countries, where the comparable figure is between one and one and a half percent.

Of course this is just two years, but I think it is consistent enough to warrant the title to this post, and more informative than the quarterly focus of most news reporting. It’s also more informative than the ONS data release, where the international comparison involves a table of quarter on quarter growth rates! Whereas in 2022 and 2023 the UK economy appeared stagnant, since 2024 we have seen modest growth.

This is good news given that growth may still be inhibited to some extent by the impact of the UK leaving the EU. There are other positive signs. In the past I have given, where possible, figures for GDP per capita, because immigration has flattered the GDP numbers. In contrast in the first half of 2026 UK growth in GDP per head is much the same as growth in GDP, as immigration levels have been quite low.

More positive still is the source of UK growth. As I have noted many times, levels of UK investment are consistently below investment in other countries. Yet if we look at the growth between the first quarter of 2026 [2] and average 2019 levels, UK gross fixed capital formation has increased by almost 13%, nearly double the growth rate of UK GDP over that period. In comparative terms we are still behind the US (AI again) and Italy (where investment growth has boomed, exceeded the US), but we are well ahead of the other four G7 countries. The latest UK data shows continuing strong growth in the second quarter of 2016.

There is even positive recent news on productivity. As John Van Reenen and others have recently pointed out, if we move away from the current Labour Force Survey and instead use the data the ONS is likely to soon adopt, between 2024 Q3 and 2026 Q1 UK productivity increased by 2.4 per cent, which is pretty good by recent UK standards.

On one level none of this is too surprising. The UK’s comparative economic performance since 2010 has been terrible, and so the beginnings of some sort of recovery from that is not totally unexpected. If I am right that the UK’s comparative decline since 2010 has been largely due to large government policy errors, then a change of government for the better could well signal the start of any recovery.

Of course, as we found out in 2010, economic recoveries are particularly fragile in the early stages. Any complete recovery would probably require reversing the policy errors previously made, on Brexit in particular. International uncertainties remain, although all G7 countries are affected by those to varying degrees. Yet it is nice to write something positive about the UK economy for a change.

[1] I have updated the OECD data to add a guess for 2026Q2 for Japan, and the latest data for the UK for that quarter which was released by the ONS last week. My guess for Japan turned out to be pretty good. 

[2] OECD data for 2016Q2 is not yet available for most G7 economies.