Recent research from the Resolution Foundation, funded by the Nuffield Foundation, sheds new light on the UK’s economic performance over the past decade, revealing a complex picture of growth influenced heavily by rapid population increase rather than genuine productivity gains.
Population Growth and Economic Expansion
Since 2010, the UK has experienced a population boom unprecedented in the last century, with a 0.7% annual increase translating to six million additional people, largely driven by migration. This surge has placed the UK’s economic growth in a relatively favorable light compared to other G7 nations, surpassing Germany, France, Italy, and Japan, but still trailing behind the US and Canada. In terms of overall growth across the OECD, the UK’s performance appears average.
The Real Picture: GDP Per Capita
When adjusting for population growth, the narrative shifts significantly. The UK’s GDP per capita growth paints a grimmer picture, with an increase of only 4.3% over the last 16 years—dramatically lower than the 46% growth seen in the 16 years prior to this period. This stark difference highlights the superficial nature of the growth driven by population increases, without corresponding improvements in per capita wealth.
Productivity Concerns
The heart of the issue lies in productivity, which has seen abysmal growth since the 2010s. Averaging only a 0.6% increase annually, UK productivity growth is one of the lowest in the G7, highlighting a critical area of concern for future economic policies. This slow growth in productivity, which is the true driver of rising living standards, represents the weakest expansion since the aftermath of the financial crisis and stands as the most significant challenge to improving living conditions in the UK.
Service Sector as a Beacon of Hope
On a positive note, the UK has excelled in expanding its service sector, becoming the world’s second-largest exporter of services, trailing only the US. With services exports growing by 7.8% annually—surpassing the OECD average—this sector presents a promising avenue for future economic enhancement, especially as global trade in services is expected to outpace goods in the coming years.
Future Economic Drivers
Looking forward, the previous drivers of economic growth, particularly employment growth fueled by migration, are unlikely to repeat given expected reductions in migration and demographic shifts towards an aging population. The focus, therefore, must shift towards significantly enhancing productivity and capitalizing on the UK’s strong position in the services market.
Conclusion
Greg Thwaites, Research Director at the Resolution Foundation, emphasizes that while the UK’s GDP growth might seem average, underlying factors of population growth and poor productivity are critical concerns that need addressing. He suggests that the UK’s future economic policy should leverage its strengths in service exports while urgently addressing productivity challenges to improve living standards and economic stability. This dual approach will be crucial for the UK as it navigates the complexities of a post-Brexit world, demographic changes, and global economic shifts.
