Is our economy emerging from intensive care?
Authors: Charles Levy
25 July 2013
Today’s (25th July) GDP figures are good news, especially paired with our improving export performance as reported earlier this week by the British Chambers of Commerce. These numbers identify growth in every major industry, and the quarterly total of 0.6 per cent growth is closer to the long-term trend before the crisis.
However, economic output remains 3.3 per cent below 2008 levels. Even at the impressive growth rate announced today, we would have to wait until the end of 2014 to get back to the pre-recession level of GDP. This makes for nearly seven years of lost output.
Growth in 2009 and 2010 was similarly impressive, but proved to be unsustainable (as can be seen in the figure below). In 2011, it appears that both external factors – the Eurozone crisis in particular – and structural issues in our economy held back a potential recovery.
Disappointingly, the fundamentals of our economy have changed very little since. As discussed in our recent report A Manifesto for Innovation and Growth, the UK’s financial system poorly caters for innovative firms. We have under invested in infrastructure and missing skills continue to hold back many organisations, while institutional support remains fragmented.
Our two most important economic indicators are GDP statistics and the health of our labour market. Unfortunately, they are once again not in sync. New numbers out last week showed that employment growth is flat and wages continue to fall behind the cost of living. We very well may be seeing the start of a sustained recovery, but it is yet to fully take hold and may not for some time.
If this quarter’s improvement in the growth rate is to become anything other than a blip, then it must be seen as an opportunity to tackle the real long-term structural issues which continue to obstruct sustainable growth. This means investing in new banking and funding models that can better channel resources through our economy; investing in the infrastructure of innovation (science and research facilities, the next generation of broadband connections and platforms to unlock the opportunities of big data); building stronger institutions, both at national- and local- levels, to pursue a modern approach to industrial policy across government.
Only by taking these measures can we unlock the capacity of innovative firms, which will be the future drivers of long-term sustainable growth.
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