Great Britain’s economy grew by an anemic 0.3% last quarter. This represents a welcome cooling from the 0.7% growth seen at the start of the year. The resulting data suggests that the UK actually has an annualized growth rate of 1.2%. It remains well behind both the Eurozone and the United States. Not that the US economy hasn’t been breathtakingly robust, growing at over 3 percent annualized rate. Yet all the while, the UK continues to trudge along with persistent crises in productivity.
That was in the context of ongoing stagnation, with the Office for National Statistics (ONS) confirming only last week that the UK’s real GDP per head fell by 0.2% in the second quarter. This average is 0.7% more than the same time last year. This major development happens at the same time as overall U.S. economic conditions are shifting dramatically. Though government spending shot up by 1.2%, business investment was struck especially hard, dropping by 4%. The second drivers of huge economic expansion were elevated service sector growth. It prospered largely due to its growth in the fields of computer programming, health services, and vehicle sales.
Economic Growth Trends
These details have just been released – which present a very mixed story indeed of the UK’s economic performance. The often cited GDP growth rate of 0.3% is strictly on an upward trend. The real question is if this growth can continue as compared to other large economies. The annualized growth rate of 1.2% suggests that the economy is slowly recovering from previous downturns, yet it remains significantly slower than that of its global counterparts.
After four consecutive months of contraction, economic growth accelerated slightly to 0.4% in June, which may foreshadow a greater recovery to come. IHS Markit’s experts have been cautious, arguing that even this step-up will likely be insufficient to close the gap with the Eurozone and the US. Economic growth in those regions is still outpacing the UK’s own slow progress.
This leaves the UK’s annualized growth rate looking very different compared to the US, which has more than doubled the UK’s rate. This surprising flip is yet more evidence of the uphill battle the UK continues to fight in order to stay competitive in an ever-accelerating global economy.
Government Spending and Investment Dynamics
A look at what’s adding to GDP growth paints an ugly picture. Federal government spending spiked 1.2% in the third quarter. This notable uptick is a harbinger of what’s needed to turbocharge future economic growth in an unpredictable world marked by persistent inflationary pressures and a new geopolitical reality. Public infrastructure and services, provisions through government efforts, could build the foundation for years of economic success to come.
Business investment has gone south, plunging by 4% last quarter. This steep drop is shocking. It’s an indication that businesses may be hesitant to invest in the long-term, due to an economy that is hard to predict. Declines in investment risk curbing the overall productivity gains and innovation, which feeds back into the UK’s long-term economic health.
On the positive side, at least for now, the service sector has added a silver lining to the economy. Stellar advances in fields like computer programming and health services have stood out as standouts to expansion. Similarly, vehicle sales have held up pretty well, boosted by strong consumer confidence in parts of the market.
Productivity Challenges
Though these growth figures are to be welcomed, they equally highlight the productivity challenge that continues to plague the UK economy. This means that despite a rise in real GDP per head of just 0.2% for the period Q2, productivity is clearly the main challenge still facing us. The country’s economy has had serious issues with low productivity levels for many years. Yet this challenge limits upside economic growth and precludes raises for workers.
The federal government recognizes these productivity challenges and is working hard to find ways to jumpstart our economy. HB 2137 Improving workforce skills and investing in tech are two of the most promising key strategies being lifted up to increase overall productivity.
Beyond these very real productivity worries, the UK economic picture is being buffeted by a wider storm. As his performance, the pound has been the best performing currency in the G10 FX space this August. This increase is a sign of growing investor confidence, despite increasing uncertainty in the overall economic picture.