Britain’s sluggish growth is nothing to celebrate

So, the doomsters have been proved wrong again – not least the Bank of England, which a year ago forecast recession throughout 2023. GDP figures released by the Office of National Statistics this morning show that the economy grew by 0.2 per cent in August, partially reversing a sharp contraction of 0.6 per cent in July.  Across the three months to August – which is a rather better guide to what is happening than the volatile monthly figures – show growth of 0.3 per cent. It is not possible now – by the usual definition of two consecutive quarters of negative growth – for Britain to suffer a recession in 2023, and neither does it seem all that likely that we will be experiencing one in six months’ time. But no-one should get too excited.

There is plenty of bad news in today’s figures. July’s economic performance was actually revised downwards, from -0.5 per cent to -0.6 per cent. Moreover, economic growth in August was not general across the economy. Production – which includes manufacturing – fell by 0.7 per cent, and construction by 0.5 per cent. While services as a whole rose by 0.4 per cent, consumer-facing services fell by 0.6 per cent, suggesting that the strain of higher interest rates is beginning to tell on consumers. The worst sector was arts, entertainment and recreation, where output plunged by 7.2 per cent – although this came after rapid growth in July, showing volatility in month-on-month figures.

Take away the noise and the situation is pretty well unchanged over the past couple of years. The economy has recovered from the deep hole into which it fell during the pandemic, but it has not recovered even to the lukewarm growth we saw during the decade to 2019. Rather, long term economic growth has levelled off. We are experiencing stagnation, and there is little sign that we will be returning soon to the levels of growth that we took for granted in the six decades following World War 2. Bear in mind that the population is growing at a rate of around a third of a percentage point per year, and economic growth of 1 per cent or under is even less impressive.

There are several possible reasons for stagnant growth: an ageing population, low productivity, high government borrowing and taxes, the shift to a service-based economy where it is more difficult to increase productivity (you can make a machine to hammer out multiple pairs of, say, scissors but a hairdresser can only cut one person’s hair at a time). It is easy for Labour to blame the Conservatives for an anaemic economy, but it is hard to see how the party, should it win power next year, will succeed in changing any of the factors that are holding back growth.