How Britain’s economic woes compare to Europe’s – a close look at the numbers | Economy

Say, grim, gloomy: all the words used to describe the UK’s economic situation after Thursday’s autumn statement.

Over the past few decades, UK GDP growth has averaged somewhere between the highest rate in the US and the lowest rate in the Eurozone. That’s starting to change, said Carsten Brzeski, global head of macroeconomics at ING Research. Observer. “It took Brexit for the UK to converge with the eurozone economy,” he said. “The outlook is very similar to what we see in mainland Europe.”

Britain’s post-pandemic recovery has been particularly weak. The OBR’s latest lean forecasts do not include international comparisons, but. However, some data suggests that the UK faces a particularly poor outlook, even though many of its challenges are shared with its neighbors and trading partners.

First in last out

The UK is now in recession, according to the Chancellor, Jeremy Hunt, and the OBR. UK production has already fallen by 0.2% in the three months to September, the ONS said. This compares to growth of 0.2% in the Eurozone, with output in France and Germany increasing by 0.2% and 0.3% respectively. In the United States, the economy grew by 0.6% over the same period (although there are some variations in how countries measure their economy). “We expect the UK to be the first to enter a recession and the last to emerge,” said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.

OBR recession chart

Covid recovery

At least part of the reason for Hunt and the OBR’s gloom is the scarring effect of the Covid-19 pandemic. The UK will only return to its pre-pandemic growth level by the end of 2024, according to the OBR, and the UK’s total economic output was still 0.4% lower than that of before the pandemic at the end of September, according to data from the Office for National Statistics showed. The OBR predicts a 2% drop in GDP before Britain returns to growth.

The US economy, on the other hand, is already 4.2% above its pre-pandemic level, while eurozone GDP is 2.1% higher than at the end of 2019, according to figures from the Organization for Economic Co-operation and Development.
Growing inactivity

Britain’s labor market is “incredibly tight” compared to many of its international counterparts, said Marchel Alexandrovich of Saltmarsh Economics.
Having fewer workers to spare can fan the flames of inflation as employers raise wages to attract and retain staff. But there is another problem in Britain: people of working age who drop out of the labor market and are classified as inactive.
While the UK has traditionally had a lower inactivity rate than many of its eurozone peers, this metric has risen sharply during the Covid-19 pandemic and its aftermath. Some economists, including Alexandrovitch, believe the UK is developing its own particular problem with this metric. “It appears to be a long term illness, rather than just a long Covid in play. There is a growing problem with healthcare backlogs which adds to the lack of flexibility in the UK labor market, in addition of Brexit’s impact on migration,” Alexandrovich said.

Covid real GDP

Growing inactivity

Britain’s labor market is “incredibly tight” compared to many of its international counterparts, said Marchel Alexandrovich of Saltmarsh Economics. Having fewer workers to spare can fan the flames of inflation as employers raise wages to attract and retain staff. But there is another problem in Britain: people of working age who drop out of the labor market and are classified as inactive.

While the UK has traditionally had a lower inactivity rate than many of its eurozone peers, this metric has risen sharply during the pandemic. Some economists, including Alexandrovitch, believe the UK is developing its own particular problem with this metric. “It appears to be a long term illness, rather than just a long Covid in play. There is a growing problem with healthcare backlogs which adds to the lack of flexibility in the UK labor market, in addition of Brexit’s impact on migration,” Alexandrovich said.

Economic inactivity of working age

Unemployment

The latest UK data for the three months to September showed an unemployment rate of 3.6%, which is relatively low compared to some other advanced economies. It is expected to peak at 5% in 2024, according to the International Monetary Fund’s October forecast. This is just below the 5.4% expected for the United States, and below expectations for France, Italy and Canada, but above the 3.2% expected in Germany.

Unemployment

Inflation

The inflation game has fundamentally changed, according to Brzeski. It is looking to slide into a double-dip recession of back-to-back winter crises in the Eurozone due to the severe shock of rising imported energy costs. The picture for the UK is similar, he said.

“There has been a structural change in energy. It will last a few years, until the Russian gas transition is finalized. Globalization as we know it is over. There’s so much going on that it makes a typical recession and rebound unlikely,” Brzeski said.

The latest figures show inflation hit a 41-year high in the year to October of 11.1%, if harmonized – to try and compare on a like-for-like basis inflation was 10 .6% for the euro zone. France is a notable exception, with particularly heavy interventions in the energy market, with inflation at 7.1% in October according to Eurostat.

Higher inflation

Higher interest rates

Most major central banks are raising interest rates to combat global inflationary pressures as Russia’s war in Ukraine disrupted energy markets and in the wake of the Covid-19 pandemic.

Yet while some economists expect the Bank of England to raise its base rate, which will impact mortgages to 4% next year, the European Central Bank is expected to raise its key deposit rate to only about 2.5% according to Tombs.

It will be more painful for UK consumers for other reasons as well. UK households are “also more indebted than those in the EU as a whole, and need to refinance more over the next year than their overseas counterparts”, Tombs said.

Sluggish productivity

The UK is roughly in the middle of the pack if you compare productivity growth to other major economies from 2011 to 2019. This is a measure of the output of one worker per hour. It is a form of growth that does not drive up inflation, and therefore a priority objective for policy makers.

Figures compiled by the OECD and analyzed by TS Lombard show that UK productivity grew by 0.7% between 2011 and 2019, like France and Germany, and ahead of Japan at 0.4%, but slightly lower than that of the United States and Spain at 0.8% and 0.9. % respectively.

But a key driver of weak productivity growth has been the catch-22 of the need to spur growth with bold spending commitments but also stick to tough borrowing rules, according to economist Freya Beamish. chief at TS Lombard. “Economies are multi-dimensional and Brexit was binary so the leftovers are too gloomy and Brexiters were too optimistic and the truth is somewhere in between,” she said. “But policy makers lack vision and are desperate to tick the boxes they themselves created. [the OBR] condemn the economy to a worse than necessary outcome.

Labor productivity