The UK’s middle-of-the-pack record on economic growth since 2010 has been flattered by the population growing by six million people. But Britain will need to turnaround its dire productivity record and leverage its services strengths if it wants raise growth and boost living standards in the 2020s, according to new research published today (Sunday) by the Resolution Foundation.
Life in the Slow Lane – the latest Resolution Foundation election briefing, funded by the Nuffield Foundation – examines the UK’s track record on the key economic metrics of growth, productivity and trade since 2010, how the country’s performance has evolved over this period, and how it needs to change in the next parliament.
The Chancellor has been keen to highlight the most recent GDP data for early 2024, which was the strongest in the G7, while the Shadow Chancellor has been highlighting the record over the parliament as a whole, in which GDP per capita has fallen by 1.2 per cent.
But looking at the UK’s overall record on economic growth since 2010, the report notes that its relative performance has been middle-of-the-pack. Compared to other G7 economies, the UK has grown faster than Germany, France, Italy and Japan, slower than the US and Canada, and is about average across the OECD.
However, this solid if unspectacular performance on GDP has been flattered by a booming population, which has grown by 0.7 per cent a year since 2010, equivalent to six million more people. This is the fastest population growth the UK has seen for a century, with three-quarters of it accounted for by migration.
Looking at GDP per capita, which accounts for population growth, the UK’s overall and relative performance is far worse. GDP per capita has grown by a mere 4.3 per cent over the past 16 years in total, compared to 46 per cent in the 16 years prior to this.
Growth in the 2010s was largely driven by an employment boom (peaking at 76.1 per cent in Q4 2019) which has since turned to bust (now 74.5 per cent in Q1 2024), exposing the UK’s poor record on productivity – the ultimate driver of rising living standards.
In the 2010s, productivity (output per worker) grew by just 0.6 per cent a year – less than a third of the rate enjoyed in the decade running up to the financial crisis (2.2 per cent) – and the second worst performance in the G7 after Italy. Productivity growth since the financial crisis has been the slowest for two centuries.
And while the UK’s longstanding productivity woes are now also being experienced by other advanced economies such as France and Germany, Britain has found new areas of economic exceptionalism on trade – for good and for ill.
The report finds that, since 2019, the UK has cemented its role as the world’s second biggest exporter of services after the US, with services exports growing by 7.8 per cent a year, compared to an OECD average of just 5.4 per cent. This is especially encouraging given the global trade in services is forecast to grow faster than goods in the coming decade, and the UK is well placed to capitalise on this trade tailwind.
Far less welcome, however, has been its weak performance on goods trade. The UK has failed to capitalise on the post-pandemic boom in goods trade – losing market share in the goods that it sells to other countries – and seeing goods exports grow by just 1.1 per cent a year, compared to 5.3 per cent across the OECD.
Looking ahead to what might drive future economic growth, the report says that the employment boom that boosted growth in the 2010s is unlikely to be repeated. Migration levels are expected to fall, from 685,000 in 2023 to around 350,000 annually over the next five years, while an unhealthy population and UK’s large baby boomer cohort retiring will put further downward pressure on the future growth of the workforce.
Instead, future economic growth will need to come from the UK addressing its long-standing weakness on productivity, and leveraging its long-standing strengths in services.
Greg Thwaites, Research Director at the Resolution Foundation, said:
“The economy is at the centre of the election campaign, and the UK’s economic record is bang average when it comes to GDP growth. But beneath this ‘middle-of-the-pack’ position lies some major strengths and weaknesses that hold the key to the UK’s future economic performance.
“Britain’s middling growth record has been propped up by a booming population. The extra six million people in Britain have certainly made the economy bigger, but has done little for GDP per capita. In fact, the UK’s record on productivity – which is what really matters for living standards – is exceptionally bad.
“There is widespread consensus on the need to turnaround the UK’s productivity record, which is far easier to talk about than deliver. But if the next government is looking for encouragement, it should seek to build on Britain’s already booming services exports, which could really go gangbusters over the coming decade.”
Notes to Editors
- The Nuffield Foundation is an independent charitable trust with a mission to advance social well-being. It funds research that informs social policy, primarily in Education, Welfare, and Justice. The Nuffield Foundation is the founder and co-funder of the Nuffield Council on Bioethics, the Ada Lovelace Institute and the Nuffield Family Justice Observatory. The Foundation has funded this project, but the views expressed are those of the authors and not necessarily the Foundation. Website: nuffieldfoundation.org Twitter: @NuffieldFound
