The UK economy is in recession (and becoming a bit more European)

Four years after the UK exited the European Union and three years after leaving its formal structures (single market and customs union), the British economy is becoming a bit more European. 

While the United States continues to grow at pace (an annual rate of 3.1 per cent in the last quarter of 2023) the UK has fallen into recession, contracting by 0.3 per cent in the last three months of 2023, following a 0.1 per cent fall the quarter before). Yet regular readers of this newsletter will know my view that comparison is the thief of joy, and British-American economic comparisons are the most miserable variety.

The US economy enjoys numerous and largely unmatched advantages, such as the sheer abundance of space, natural resources (in particular oil and gas leading to lower energy costs), high productivity and vast reserves of venture capital. There are downsides, of course, not least pockets of extreme poverty and the very real fear that losing a job also means losing one's health insurance. But on a macro level, it is difficult to fault.

The point I'm getting at is that the UK being in recession – while bad for individuals and a disaster for a prime minister who made getting the economy growing one of his five key pledges – does not make the country an outlier on our own continent.

Take the Eurozone: in 2023, it grew by 0.1 per cent in Q1, the same in Q2, shrank by 0.1 per cent in Q3 and flatlined in Q4. Unsurprisingly, France and Germany basically stood still. Further afield, Japan did little better. 

Perhaps a clearer way of looking at this is to study real GDP growth amongst the G7 compared with pre-pandemic levels:

Germany: 0.1% | UK: 1% | France: 1.8% | Japan: 2.8% | Italy: 3.6% | Canada: 4.5%

Eagle-eyed readers will notice I missed one. Quite an important one, in fact. The US economy has grown by 8.2 per cent since just before the pandemic. And I'm not going to sugar-coat it: at $21.73 trillion, it was already quite large to begin with.

It would be remiss of me not to add a little more negativity. The UK's abysmal economic situation is even worse if you look at it from a per capita basis. That is because the country has experienced significant population growth over the last two years. Net migration was 745,000 in 2022 and 672,000 in the year ending June 2023.

The maths is quite simple. If the same GDP (or even less of it) is spread over more people, then GDP per person is even worse. So in the final quarter of 2023, GDP per capita fell by 0.6 per cent, and nearly 0.4 per cent in the previous quarter. In fact, GDP per capita hasn't grown since the start of 2022. According to the Resolution Foundation, GDP per capita is now 4.2 per cent off its pre-cost of living crisis path – equivalent to a loss of nearly £1,500 per household.

But these numbers, whether national or per person, annual or quarterly, threaten to overcomplicate a quite simple reality. The UK economy is doing not very much at all, and hasn't for a fair while. The fundamental truth is this: British households are set to end a parliament poorer than when they started for the first time since the Second World War, which was at least a fairly decent excuse. And even then, the Conservatives lost.

In the comment pages, George Chesterton suggests Keir Starmer is the perfect symbol for 2024: he can't win, even when he wins. Anna White says building on the green belt is a political grenade – Michael Gove should have pulled the pin. While Paul Kanareck calls the Zone of Interest one part of a painful jigsaw.

And finally, the lesser-spotted ☆☆☆☆☆: (zero-star) review. Hamish MacBain did not enjoy Madame Webb, the 'superhero nadir'.