Hard Times?

Why is there so much discussion in the UK about growth?

Key Points

·  Economists live in world of economic data points, with GDP being one common measure of a country’s performance.  Yet, individuals would find little solace in these national ‘metrics’.   

·  One could argue it’s not about how big the pie is overall for individuals, but how big their personal slice is.  For this, a more relevant measure would probably be GDP per capita.

·  We’re told that the 1970’s was a grim time for the UK economy – strikes, inflation, 3-day weeks.  Hmm, that all sounds strangely familiar again. Yet, in 1970 GDP per capita averaged 2.5% per year.  By 1980 it dipped to 2%, and for the next 25 years, this measure of economic growth remained fairly consistent.

· Since the financial crisis of 2008, there has been a marked deterioration in the long-term growth rate of GDP per capita. Over the last 15 years, GDP per capita has average just 0.4%.

· With a rising but also aging population, this collapse in long-term growth rates will create even greater stress on public finances, which are already burdened with high taxes, high spending AND high borrowing. There is a recognition that we need to raise both the growth rate and growth rate per capita, to help pay for everything that we expect the government to provide. You would hope that politicians are working on the solution. Hard times (and hard choices) indeed, but not insurmountable.

· Although, for this reason, the US market remains more attractive from an investment perspective.