Does the UK really have the fastest growing economy in the G7?

If you have been paying attention to politics recently, you will know that the UK has the fastest growing economy in the G7, the group of the world’s strongest economies.

You will know it because the Prime Minister said so at last week’s Prime Minister’s Questions…and at the PMQs before that, and the session before that. It has been repeated by Chancellor Rishi Sunak, Health Secretary Sajid Javid, Transport Secretary Grant Shapps and countless other Ministers.

The boast about the UK’s economic wellbeing has been part of Mr Johnson’s fightback against criticism from Labour and other parties about his alleged law breaking with Downing Street parties.

But another part of that fightback – when the Prime Minister said that ““we have been cutting crime by 14%” – has been criticised by the official data authority, the Office for National Statistics, whose chair said that the data had been used in a “misleading” way.

So at a time when Mr Johnson’s truthfulness is under the spotlight, is the claim about growth in the UK the truth, the whole truth and nothing but the truth?

The first answer to that question is that the statement is correct: figures released on Friday showed that the UK economy grew by 7.5% in 2021, the fastest since ONS records began in 1948.

But critics point out that the Government claim at best tells only half the story, with the sharp rise only being possible because of the record 9.4% slump in the economy in 2020.

So when the Treasury issued an impressive-looking graph and said “new GDP figures released this morning show the UK economy has reported the strongest growth since the Second World War”, the respected economist Paul Johnson, director of the Institute for Fiscal Studies, replied: “Statement and chart are literally true. But do they reveal the truth? No.

“Economy grew strongly because it collapsed so much in 2020. Only interesting comparisons are with pre-Covid levels. We’ve done less well than most of G7 since then.”

That is why a number of business groups are ignoring the Prime Minister’s economic optimism and pointing to concerns about the state of the economy.

When asked about the growth figures by The Journal last week, CBI director-general Tony Danker said that “no-one should believe it’s a statement of any significance for our economy.”

Instead he pointed to official forecasts that point to sluggish growth in 2023 and 2024 once the huge Covid slump has been arrested.

“What is very important to look at is what the independent Office for Budget Responsibility says for the economy once the V-shape is complete,” he said. “They say we’re coming back and staying low. The question is, when we come back to a steady state, what’s the growth plan? That’s when the Government needs to really be on the ball.”

Those concerns are shared by other business groups, including the British Chambers of Commerce and the Federation of Small Businesses.

Last week the Chambers warned there was a looming “cost-of-doing-business crisis” that will lead to rising prices, lower investment and firms shutting down.

And now the FSB has said that “our economic recovery is not yet under way in any true sense”.

FSB chair Mike Cherry said: “Against a backdrop of surging prices and labour shortages, we’re now hurtling towards the unwinding of remaining Covid support measures, a national living wage increase and a regressive hike to national insurance contributions in April.

“Unless policymakers intervene before this April flashpoint to cancel the jobs tax hike and alleviate the mounting wider pressures that small firms face, we risk long-term scarring of the economy and local communities.”

Many businesses are also worried about the effect rising inflation will have on their operations, both in their own costs and the spending power of the general population.

And so when Friday’s record growth figures were announced, many analysts were not as quick to congratulate the Government as Ministers might have hoped.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “The UK economy’s performance continues to underwhelm relative to its peers in the G7. Q4 GDP was 0.4% below its Q4 2019 level, whereas it already was 3.1% above its pre-Covid peak in the US, 0.9% above in France and 0.2% above in Canada.”

And Thomas Pugh, economist at RSM UK, added: “We expect all of the output lost during December and January to be regained in February and March, meaning that Omicron should not have had a lasting impact on the economy.

“However, the rebound may be relatively short-lived as inflation will continue to rocket in the coming months, peaking at around 7% in April.

“Inflation and tax rises mean households’ real incomes will fall by the largest amount in three decades in 2022, which will put a big dampener on their confidence and their ability to go out and spend.”

Now attention will shift to tomorrow’s unemployment figures, with last month’s data showing that the North East had regained its unwanted position as the region of the UK with the highest unemployment rate.

We shouldn’t expect Ministers to stop talking about the UK having the fastest growing economy any time soon. But the full picture is slightly more complicated.
Graeme WhitfieldRegional business editor