With the British economy having stagnated as a result of the Covid-19 lockdown and the subsequent war in Ukraine which disrupted economic activities across the whole of Europe, it wasn’t much of a surprise when the British economy slipped into recession during the last quarter of 2023. However, in a development that caught most observers unaware the British economy was able to pull out of recession in the first quarter of 2024 with a stronger-than-expected growth of 0.6%, the highest growth rate achieved in the last two years.
While the growth rate is not exactly impressive at 0.6%, it places the British economy along with the Canadian economy as the two fastest-growing economies among the G7 countries for the quarter under review. However, interest rates are at a sixteen-year high, translating into an increase in the cost of credit and mortgage loans. The interest rates have been increased as part of the efforts to fight inflation and the Bank of England seems to be reluctant to cut interest rates as the inflation rate is yet to fall to its target level.
A closer look at the growth experienced in the British economy in the early part of the year reveals that the growth was led by the services sector such as entertainment, hospitality, and arts which suggests that British consumers now have more disposal income compared to the last two years in which high inflation rates restricted consumer spending. Further analysis also revealed that there was an upsurge in clothing, home furnishing, and even new vehicle purchases while the construction sector remained weak.
As expected, given that we are in an election year, the debate over the impact of the economic recovery is expected to take centre stage with the British Prime Minister Rishi Sunak claiming that the economy had “turned the corner” while the Labour Party responded by saying that it was not yet time for a “victory lap”.
On his own side, the Chancellor of the Exchequer Jeremy Hunt said “Today’s growth figures are proof that the economy is returning to full health for the first time since the pandemic” while the Labour Party shadow Chancellor Rachel Reeves accused the government of being delusional about the state of the economy and reiterated that the British people are now worse off now than they were fourteen years ago.
As expected politicians will always bicker and argue about whether the glass is half full or half empty depending on what suits their fancy but the reality is that despite the recovery, consumer spending power is yet to return to the level it was two years ago before high inflation rates set in as a result of the war in Ukraine. The British economy will need to have successive years of growth along with wage increases to restore the purchasing power of the average British consumer.
While it’s undisputable that the British economy is one of the most developed in the world, mature economies find themselves trapped in a system that inhibits growth as they focus more on social welfare and populist policies rather than policies that will drive economic growth. Effectively speaking, complacency sets in with efforts to grow the economy unlike what you have in the Middle East, parts of Asia, and Africa where aggressive efforts are being made to grow the economies of various countries.
Leaving politics aside, the British authorities need to go back to the drawing board to evaluate where the economy is presently and then determine where they want it to be in the next ten to thirty years. They need to identify what the global economic trends are, while they need to determine what the growth drivers for the British economy should be given their comparative advantage and start working actively to overhaul the British economy and ensure that it remains globally relevant given the emerging dynamics of the global economy while also putting measures in place to actively grow their economy to ensure that the British economy doesn’t begin to stagnate as it happens to most mature economies.
Oshobi, a development economist, management consultant, and author writes from Lagos, Nigeria.