IIMR March 2024 - Has the UK economy stopped growing?

Summary

Tim Congdon, Chair of the Institute of International Monetary Research, examines the UK economy ahead of the 2024 general election. He highlights national economic stagnation since 2010, with low productivity and minimal living standards growth, particularly affecting northern regions like the Midlands and Gateshead. In contrast, London and Southeast England thrive through booming international business services—consultancy, legal, accounting, and IT—driving significant GDP growth. These stark regional disparities fuel political dissatisfaction and challenge the government's 'levelling up' efforts. Congdon’s analysis underscores a patchy economy where thriving high-value sectors coexist with struggling traditional regions, shaping both economic and political landscapes in Britain.

Takeaways

• 📉 The UK economy has experienced stagnation since 2010, with real GDP growth averaging around 1% per year and productivity growth at only 0.5% annually.
• 💸 Inflation in the early 2020s, combined with slow economic growth, has contributed to stagnating living standards across much of the country.
• 🏭 Northern and Midlands regions, such as Gateshead, have seen relative declines in GDP per capita, fueling political dissatisfaction among working-class voters.
• 🌆 London and the southeast have thrived due to rapid growth in International Business Services (IBS), creating stark regional economic disparities.
• 📊 IBS includes sectors like financial services, legal, accounting, consultancy, IT, telecom, and advertising, which have seen strong export growth over the past 25 years.
• 💼 Post-2008, financial services growth slowed significantly, but legal, consulting, and IT-related services have grown at approximately 7% per year in real terms.
• 🌐 UK service exports now make up about 12% of GDP, with half of total exports being high-value services rather than goods.
• 🏢 Big consultancies, multinational headquarters, and specialized professional services have been major drivers of London’s economic resilience.
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• ⚖️ Government initiatives aimed at 'levelling up' regional disparities have largely failed to address the root causes of uneven economic development.
• 🗳️ Economic stagnation in certain regions contributes to political volatility, likely impacting Conservative Party support in upcoming elections.
• 📈 The UK economy is highly patchy: while some areas experience robust growth, much of the country struggles with stagnation, highlighting deep structural inequalities.

Q & A

Who is the speaker and what is his area of expertise?

The speaker is Tim Congdon, Chair of the Institute of International Monetary Research at the University of Buckingham. His expertise lies in economics and monetary research.

What is the main focus of Tim Congdon's talk?

The main focus is on the UK economy as a background to politics, particularly in the context of the upcoming 2024 general election, and the impact of economic performance on political outcomes.

How has the UK economy performed since 2010 according to the transcript?

Since 2010, the UK economy has had poor performance, with real GDP growth averaging about 1% per year over the last 14–15 years, stagnating productivity growth of around 0.5% per year, and stagnant living standards.

What are International Business Services and why are they significant?

International Business Services (IBS) include high-value services such as consultancy, legal, accountancy, and information services. They are significant because they have grown rapidly, particularly in London and Southeast England, and now contribute about 12% of UK GDP through exports.

How did the Great Financial Crisis affect the financial sector in London?

Before 2008, financial services in London grew at nearly 10% per year. After the crisis, growth slowed to around 3.8% per year due to tightened regulations and financial sector restructuring.

Which non-financial business services have experienced rapid growth since 2010?

Non-financial services like consultancy, legal services, accountancy, advertising, marketing, and telecom/information services have seen high growth rates, with real growth in some sectors reaching around 7% per year.

How do regional disparities manifest in the UK economy?

Regions like Gateshead in the North have seen GDP per capita decline relative to the UK average, while areas like Westminster in London have GDP per capita over 10 times the UK average, reflecting concentrated economic growth in high-value sectors.

What role do multinational headquarters play in the UK economy?

Multinational headquarters, including companies like BP and Shell, contribute significantly by providing services to their global operations and generating payments to UK-based offices, supporting London’s economy.

What are the political implications of the economic situation described?

Economic stagnation in certain regions, coupled with rapid growth in London, has led to political discontent in traditional Conservative strongholds, likely contributing to a predicted wipeout of the Conservative Party in the 2024 election.

What does the transcript suggest about the effectiveness of government efforts to 'level up' regions?

The government’s efforts to 'level up' have largely failed, as structural regional disparities persist, with some areas benefiting little from economic growth while others continue to boom.

How does the growth in London’s business services compare to the overall UK growth rate?

London’s business services have been growing at around 7–9% in real terms, significantly faster than the overall UK GDP growth of about 1% per year, highlighting the uneven nature of economic performance.

Which sectors have been particularly boosted by the internet according to the talk?

Telecom, computer, and information services have been particularly boosted by the internet, reaching about £35 billion in exports and growing at around 10.8% per year.