The Chancellor has heralded the latest GDP figures as a ‘major milestone’ in his long-term plan for the economy. Figures released by The Office for National Statistics (ONS) illustrate that the economy grew by 0.8% in the second quarter of the year – a 0.2% increase on the pre-crisis statistics recorded in the first quarter of 2008. The UK economy has now experienced consecutive positive economic growth rates for the last six quarters – the longest sustained period of rising output since 2008. These latest figures have therefore ended a painful seven-year long wait for a return of the economy to pre-crisis levels. These encouraging figures have led the IMF to declare the UK as the fastest growing developed economy, and have upgraded growth forecasts made in April for the year to 3.2%, an increase of 0.4% percentage points and 2.7% for 2015, an increase of 0.2% points.
However, despite the achievement of this ‘major milestone’, a more accurate representation of recovery is GDP per capita and these figures paint a less optimistic picture of the economy. ONS figures show that GDP per capita is still well below the pre-crisis level by just under 5%. According to the June 2010 budget, the rate should have reached this level before the turn of the year. If it maintains the current rate, GDP per capita will eventually reach the pre-crisis level either towards the end of 2016 or early 2017. Therefore, economic recovery will not equalise for another two to three years at least, which the Shadow Chancellor Ed Balls has correctly referred to as, ‘the lost decade for living standards’. Society is therefore still worse off now since wealth and thus living standards are still well below the pre-recession levels. The recent GDP figures cannot therefore be seen to reflect the true and accurate state of the economy.
The UK population has increased by 4.6% since 2008, from 61.07 million to 63.9 million, and a growing population should theoretically be able to produce more. To put these population figures into historical context, in the last 50 years UK population has increased by 22%. Subsequently, just under a quarter of the increase has occurred in the past 6 years since the inception of the crisis. According to Eurostat and ONS, between the period 2008 to 2013, GDP per capita measured in purchasing power standards and therefore adjusting for difference in price levels, fell from 114% of the EU average to 106% – a fall of 8% points.
Consequently, recovery and in turn prosperity can only be judged by a multitude of factors. The recent GDP figures were lauded, yet other critical information such as GDP per capita and population growth figures were not analysed, and beamed across media outlets to illustrate the underlying state of the economy. However, this isn’t surprising given the upcoming general election, and the ritualistic need to put a positive spin on the state of the economy.