Boris Johnson told the truth in the House of Commons this week. Three times on Monday and again three times on Wednesday, he said that the UK had the fastest growing economy in the G7. This is accurate. But prime ministers should be held, at least, to the same standards as accountants. Johnson’s comments did not remotely meet their basic metric that statements should be true and fair.
Let’s do the truth bit first. Figures from the OECD show that in the third quarter of last year, the UK economy was 6.8 per cent larger than a year earlier, a higher rate of expansion than every other G7 nation. Moreover, both the latest OECD and IMF forecasts show the projected annual growth rate for 2022 to be top of the G7 league table.
But to be true and fair, Johnson’s comments also need to be placed in a relevant context. In the first two quarters of 2020, the UK economy dived 21.6 per cent below its pre-pandemic level, significantly worse than any other G7 country. It is therefore not noteworthy that the recovery will also be quicker.
Moreover, by the third quarter of last year, the UK was still second from the bottom of the G7 league table when comparing the overall recovery from Covid with pre-pandemic levels.
Truth and fairness requires me to add that all of this data is being regularly revised, so we should not conclude that the UK recovery from coronavirus has been particularly poor. Given what we know about the fourth quarter of 2021, all we can say is that it has been similar to those in Germany, Italy, Canada and Japan, but slower than that in France and the US.
If the prime minister was genuinely curious, he could ask smart officials to give him a rounded picture of the UK’s economic outlook. Last autumn, things were looking relatively bright, they would say. Households clearly wanted to see the back of the pandemic and were keen to spend. Businesses were successfully reopening as restrictions were lifted, boosting the capacity of the economy to supply goods and services. Unemployment stayed low, even as government support was reduced. And inflation was reported to be 2 per cent, although the Bank of England thought it would rise a little to peak at 4 per cent by Christmas.
Almost everything we have subsequently learnt about the UK economy has been troubling. Although unemployment is low, evidence of a labour force problem is mounting, with 1mn fewer people either working or seeking work than we would have expected had the pandemic not occurred. That is roughly a 3 per cent hit to the available labour supply.
As spending has increased, this has stoked inflation far more than almost anyone expected. It means the scope for catch-up growth is running out, now that unemployment is back at pre-pandemic levels.
Worse, the UK growth rate is also artificially boosted by £25bn of corporate tax incentives this year and next, but investment remains weak. In the third quarter of 2021, it was still 4 per cent below pre-pandemic levels, lower than any other economy in the G7. UK exports have also not joined in the global boom. All this suggests that businesses are looking relatively unfavourably on this country, even before corporation tax rates rise from 19 per cent to 25 per cent in 2023.
The IMF also reports good growth now will soon be followed by a slide to near stagnation in the pre-election year. It reckons the UK economy will end 2023 only 0.5 per cent larger than at the start, the lowest in the G7.
So, if Johnson succeeds in hanging on as prime minister, a true and fair view shows an internationally mediocre UK economic recovery with a significant deterioration in prospect. It is enough to make a reasonable person think that remaining in Downing Street will not be much fun.
chris.giles@ft.com
Source: Economy - ft.com
