Cogito Ergo Non Serviam

UK Economy Returns to 2008 Levels, Mostly

Britain's Office of National Statistics announced that the British economy grew 0.8% in the second quarter of 2014. Since the second quarter of last year, the UK's GDP is up 3.1%. That means it is now 0.2% ahead of where it was in the first quarter of 2008, the highest level reached before the financial crisis crushed many major economies. While the Coalition government officials are delighted with the milestone, many reasons exist to be less than ecstatic.

Chancellor George Osborne said, "Thanks to the hard work of the British people, today we reach a major milestone in our long-term economic plan. But there is still a long way to go -- the 'great recession' was one of the deepest of any major economy and cost Britain six years. Now we owe it to hardworking taxpayers not to repeat the mistakes of the past and instead to continue with the plan that is delivering economic security and a brighter future for all."

However, shadow chancellor Ed Balls, said people were not feeling happier: "With GDP per head not set to recover for three more years and [with] most people still seeing their living standards squeezed this is no time for complacent claims that the economy is fixed. Wages after inflation are down over £1,600 a year since 2010, housebuilding under this government is at its lowest level since the 1920s and business investment is lagging behind our competitors."

The biggest issue, of course, is just how long it took to get back to this point. Other nations, pursuing other policies, returned to pre-disaster levels sooner. South Korea, for instance, spent like a drunken sailor and never went into recession. Germany, which was saddled with the euro crisis, made a complete recovery in 2010. France, also dealing with the mess in the periphery of the eurozone, followed the next year. The US, which has an economy structured very much like Britain's (consumers and housing dominate), took three years like France. There is a solid empirical argument that the Coalition's austerity policies actually prolonged the misery.

At the same time, not all sectors of the economy are back to 2008's mark. Services, which account for almost 80% of the UK's GDP, make up the only sector to surpass the 2008 levels. Manufacturing is at about 88% of where it was six years ago. Construction is slightly closer but still below 90%. Production, which includes manufacturing according to the ONS figures, is at about 92%. In short, there is about 20% of the economy that has yet to make it back.

Furthermore, the gross GDP is £393.5 billion now against £392.7 billion then. However, on a per capita basis, the recovery remains incomplete. Output per head will take a total of 9 years to return to the pre-crisis level because of lowered productivity and population growth. By 2017, economists believe that milestone will be passed, but much can happen in three years.

Best of all, of course, is the fact that these are preliminary figures based on about 40% of the numbers that compose the final calculation. While revisions up or down won't alter the overall trend (which is moving in the right direction), it is possible that the pre-crisis level has not yet been achieved, or that it was met earlier than currently believed.

Complicating future discussions is an upcoming change in how the whole matter is calculated. Anthony Reuben, the BBC's head of statistics, noted, "in two months the ONS will revise these figures for a once-in-15-years change to the methodology. It will change the treatment in the GDP figures of things like spending on research and development by companies and the government buying weapons." So, whether the comparisons in future will be apples to apples is hard to say.

© Copyright 2014 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Ubuntu Linux.



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