The U.K. Economy in Perspective

On this page we present the salient features of the U.K. Economy since the onset of the Great Recession in a global perspective, where the comparison is with the EU28 and the United States.

The first figures below show the path of Real GDP and its components since the recession. We have indexed all variables to the first quarter of 2008.

GDP and Main Aggregates

The Great Recession hit the U.K. Economy very hard and highlighted the significant fiscal problems facing the U.K. economy. The U.K. was also a focal point of the financial crisis and its banking system was badly undermined. Indeed, the U.K. was hit much worse than the United States and a bit more than the EU28 as a whole. Since beginning its recovery, however, it has seen growth on par with the U.S. Whereas the EU28 saw signs of trouble during the middle of 2011, the U.K. has grown steadily as shown below.

The figure above shows the year-on-year growth rate for the U.K. economy. That is the growth for 2010Q1 should be read as the Real GDP growth rate between 2009Q1 and 2010Q1. We rely on these numbers rather than annualized quarterly growth rates as we believe they paint a more reliable picture of long-run trends. While the U.K. has kept pace with the U.S. with growth numbers around 2%, it has lagged behind both the U.S. and its European neighbors since 2016Q4. Of note is the fact that the link between the year-on-year growth rate of the U.S. and U.K. that seems to have existed since 2009 is no longer evident. In particular, whereas the U.S. GDP growth rate is currently trending upwards, that of the UK is trending downward. The growth rate of the EU28 has also ticked down slightly in 2017Q4, however, making it less clear whether or not this is a symptom of Brexit.

The recovery of U.K. consumption was quite sluggish compared to the U.S. Indeed, the U.K. consumption did not lift-off until 2011Q3. Despite a strong five years of growth, household consumption growth has again stalled.

The dramatic fall in real fixed capital formation in the U.K. almost exactly mirrors that in the U.S. and its subsequent growth path has by in large outpaced the rest of the EU.
Trade in the U.K. has seen little change since the recession. In fact, there is little sign of a “Brexit Effect” that many worried would stifle trade for the U.K.

In fact, exports from the U.K. surged immediately following the Brexit vote and have since grown faster than prior to the vote.

The Labor Market

The U.K. labor market remains strong relative to the rest of the Western World. Following the recession, U.K. unemployment rose by 2 percentage points less than the U.S. and has tracked U.S. unemployment since 2012.

The U.K. labor market seems to be quite tight as well. For reference, the current cycle in the U.S. places vacancies and unemployment at 3.8% and 4.1%, respectively.

The Role of Government

While the U.K. entered the Great Recession with a large stock of outstanding debt, it was fairing much better than the rest of the EU. Its position, however, worsened quickly by the fact that it was one of the centers of the financial crisis. The figure below shows the response as a percentage of GDP.

Whereas the U.S. quickly reduced its government consumption following the start of the recovery, the U.K. did no such thing.

Moreover, the U.K. has relied more heavily on deficit spending than the rest of the EU as shown below.

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