Poor productivity sees UK growth hit lowest level since 2012
The UK’s economy saw its weakest growth figures since the country endured a double-dip recession in 2012. While the 0.1% GDP growth reported for the UK’s economy is at least still a positive one, and blamed by the Bank of England on bad weather which has since passed, many of the conditions cited for that last recession remain prevalent in the British economy.
In 2012, the Office for National Statistics confirmed the UK economy had returned to recession, after shrinking by 0.3% in the final quarter of 2011, and 0.2% in the first three months of 2012. A recession is defined as two consecutive quarters of contraction, and a sharp fall in construction output, and wage stagnation stifling consumer demand were two of the factors behind the surprise shrinkage which consigned Britain to its second recession since 2009.
The UK economy has maintained positive growth since, and employment in the nation is at a four decade high – however businesses have collectively failed to translate this into a substantial boom period, thanks largely to Britain’s poor productivity performance over the past decade. The issue deepened in 2017, as overall output per hour worked declined 0.2% in the year to the second quarter of 2017, compared with an OBR forecast for 1.5% growth as recently as the March Budget. Elsewhere the International Monetary Fund announced that due to "weaker-than-expected activity" in the first three months of the year, the global financial institution forecasts that the UK economy would grow by 1.7%, compared to a previously anticipated 2%.
The sluggish performance continued to prompt caution on the part of economic experts and one of the UK’s leading economic think tanks slashed its forecasts for 2018 following evidence that growth almost came to a halt in the first three months of the year. The National Institute for Economic and Social Research said it expected expansion of 1.4% in 2018 – down from the 1.9% it had been predicting three months ago – and anticipated that interest rates would not rise until August at the earliest.
Now, Britain’s slowdown has been confirmed, with new GDP figures showing the economy only expanded by 0.1% in the first three months of 2018. Some had hoped that last month’s preliminary growth figures might be upgraded, but ultimately the latest data from the ONS showed growth of just 1.2% in the last year – and the economy teetering on the brink of negative growth in coming months.
The Bank of England was quick to shift blame for the performance of the economy onto the so-called “Beast from the East”, a series of winter storms that saw the UK grind to a halt early in the year. This was something the ONS was keen to rule out, instead stating a crash in retail and construction driven by low levels of demand and weakened consumer power due to stagnant wages.
Wading into the debate, John Hawksworth, Chief Economist at PwC, said that growth may still pick up this year. He stated, “The ONS left their estimate of first quarter GDP growth unchanged at 0.1%, with construction and retailing being the main sources of weakness on the output side. They also continued to downplay the negative influence of adverse weather conditions on the figures, in contrast to the views of the Bank of England and indications from some business surveys that this was a more significant factor. On the expenditure side, subdued growth of consumer spending of just 0.2% was an important factor behind the slowdown, although retail sales bounced back strongly in April so we expect somewhat stronger growth in the second quarter."
While the Beast from the East was widely accepted as having contributed to a slow start in 2018, however, the construction sector in particular was found to have entered positive growth again by April. At the same time, the UK was by no means isolated in suffering at the hands of bad weather in the first quarter. In the meantime, wage stagnation has continued – something which is cited by multiple sources as having contributed to the demise of a number of high street and leisure brands this year. While growth in employment seemed to offset the effects of this up until this point, the growth in employment is likely to peak relatively soon, having already hit a 43 year high point.
