Blueprint for ending UK’s economic stagnation has a glaring omission

Published

2 years ago

December 4, 2023

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If you want a sensible document with some interesting and well-reasoned ideas for what we ought to do about the UK economy (and some brilliant charts), you could hardly do better than read the Resolution Foundation’s book/report on the topic, Ending Stagnation.

It’s a thick tome with plenty of analysis about the problems facing this country – low earnings growth, weak productivity, high inequality and so on – and a bit about our strengths too. And it synthesises much of what you might call the “Whitehall view” about what needs to be done to try to kickstart growth in the economy.

So it suggests raising benefits, lifting public investment, removing some of the countless allowances which allow people to avoid taxes, improving statutory sick pay and trying to lift cities outside London.

It’s a useful checklist, even if much of it will be vaguely familiar to anyone who has followed the economic debate in recent years.

Weak productivity is one of Britain’s biggest problems. If our bang-for-buck (which is ultimately what productivity is a measure of) had been stronger in recent years, then a lot of issues we’re currently plagued with – from high public debt to weak income growth – could have been solved.

And while there’s a good chance this document becomes a sort of Bible, which both Labour and the Conservative Party borrow from, as they seek to construct their policy manifestos ahead of the coming general election – it is not for nothing that both Chancellor Jeremy Hunt and Labour leader Sir Keir Starmer both appeared at the launch event.

Both parties want this election to be fought on economic grounds.

Both parties want the British public to know that they want to increase Britain’s economic growth rate. Indeed, Starmer has even pledged that under Labour, UK per capita growth will outpace the rest of the G7 in the coming years – an ambitious promise, though it’s unclear how he or anyone could achieve it.

And that’s because while there are some obvious ingredients for economic growth, it’s a fiendishly difficult thing to generate, or for that matter to understand.

Reservations about the report

Economists still debate why the US has a perennial productivity advantage over so many of its rich world counterparts. Is it tax policy? Does it come down to investment incentives, to the existence of strong markets, or to something else completely unquantifiable? The short answer is no-one knows for sure.

But if you’re after a decent handbook of some of the most plausible policies for boosting that growth rate, you could hardly do better than the Resolution Foundation’s tome – with a few reservations.

The first is that, this being a left-leaning thinktank, the solutions do incline towards higher taxes. Others will have different views.

Second, while the report suggests government should be investing more and mentions the need for more housebuilding in passing, it could put even more emphasis on the desperate deterioration of Britain’s physical infrastructure.

Third, and most problematic, one of the most important of all economic factors barely crops up in the report at all: energy. Britain has some of the developed world’s highest energy costs.

This is at least part of the explanation for weak productivity and investment in recent years. Bringing down wholesale energy costs would make an enormous difference in boosting activity in this country – not just for manufacturing firms but also for everyone else.

This comes back to something else. It’s tempting, since Britain’s stagnation began at the time of the financial crisis, to assume that it must all be related to what happened in the square mile back in 2008. And this is almost certainly a large part of the explanation.

However, something else happened around then too: Britain went from being a net oil and gas exporter, able to enjoy a large and constant stream of public and private revenues from the North Sea, to being a net importer. It’s going way too far to blame this watershed shift for everything, but it’s equally odd that it isn’t mentioned even once in the Resolution Foundation document.

It all matters, even the boring stuff we mostly ignore. This new document is a fascinating blueprint on some of the things we could do to get this country going again.

But it’s just the beginning of the conversation – not the end of it.

Business

UK economy figures not as bad as they look despite GDP fall, analysts say

Published

20 hours ago

July 11, 2025

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UK economy figures not as bad as they look despite GDP fall, analysts say

The UK economy unexpectedly shrank in May, even after the worst of Donald Trump’s tariffs were paused, official figures showed.

A standard measure of economic growth, gross domestic product (GDP), contracted 0.1% in May, according to the Office for National Statistics (ONS).

Rather than a fall being anticipated, growth of 0.1% was forecast by economists polled by Reuters as big falls in production and construction were seen.

It followed a 0.3% contraction in April, when Mr Trump announced his country-specific tariffs and sparked a global trade war.

A 90-day pause on these import taxes, which has been extended, allowed more normality to resume.

This was borne out by other figures released by the ONS on Friday.

Exports to the United States rose £300m but “remained relatively low” following a “substantial decrease” in April, the data said.

Overall, there was a “large rise in goods imports and a fall in goods exports”.

A ‘disappointing’ but mixed picture

It’s “disappointing” news, Chancellor Rachel Reeves said. She and the government as a whole have repeatedly said growing the economy was their number one priority.

“I am determined to kickstart economic growth and deliver on that promise”, she added.

But the picture was not all bad.

Growth recorded in March was revised upwards, further indicating that companies invested to prepare for tariffs. Rather than GDP of 0.2%, the ONS said on Friday the figure was actually 0.4%.

It showed businesses moved forward activity to be ready for the extra taxes. Businesses were hit with higher employer national insurance contributions in April.

The expansion in March means the economy still grew when the three months are looked at together.

While an interest rate cut in August had already been expected, investors upped their bets of a 0.25 percentage point fall in the Bank of England’s base interest rate.

Such a cut would bring down the rate to 4% and make borrowing cheaper.

Analysts from economic research firm Pantheon Macro said the data was not as bad as it looked.

“The size of the manufacturing drop looks erratic to us and should partly unwind… There are signs that GDP growth can rebound in June”, said Pantheon’s chief UK economist, Rob Wood.

Why did the economy shrink?

The drops in manufacturing came mostly due to slowed car-making, less oil and gas extraction and the pharmaceutical industry.

The fall was not larger because the services industry – the largest part of the economy – expanded, with law firms and computer programmers having a good month.

It made up for a “very weak” month for retailers, the ONS said.

Business

UK economy remains fragile – and there are risks and traps lurking around the corner

Published

20 hours ago

July 11, 2025

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UK economy remains fragile - and there are risks and traps lurking around the corner

Monthly Gross Domestic Product (GDP) figures are volatile and, on their own, don’t tell us much.

However, the picture emerging a year since the election of the Labour government is not hugely comforting.

This is a government that promised to turbocharge economic growth, the key to improving livelihoods and the public finances. Instead, the economy is mainly flatlining.

Output shrank in May by 0.1%. That followed a 0.3% drop in April.

Ministers were celebrating a few months ago as data showed the economy grew by 0.7% in the first quarter.

Hangover from artificial growth

However, the subsequent data has shown us that much of that growth was artificial, with businesses racing to get orders out of the door to beat the possible introduction of tariffs. Property transactions were also brought forward to beat stamp duty changes.

In April, we experienced the hangover as orders and industrial output dropped. Services also struggled as demand for legal and conveyancing services dropped after the stamp duty changes.

Many of those distortions have now been smoothed out, but the manufacturing sector still struggled in May.

Signs of recovery

Manufacturing output fell by 1% in May, but more up-to-date data suggests the sector is recovering.

“We expect both cars and pharma output to improve as the UK-US trade deal comes into force and the volatility unwinds,” economists at Pantheon Macroeconomics said.

Meanwhile, the services sector eked out growth of 0.1%.

A 2.7% month-to-month fall in retail sales suppressed growth in the sector, but that should improve with hot weather likely to boost demand at restaurants and pubs.

Struggles ahead

It is unlikely, however, to massively shift the dial for the economy, the kind of shift the Labour government has promised and needs in order to give it some breathing room against its fiscal rules.

The economy remains fragile, and there are risks and traps lurking around the corner.

Concerns that the chancellor, Rachel Reeves, is considering tax hikes could weigh on consumer confidence, at a time when businesses are already scaling back hiring because of national insurance tax hikes.

Inflation is also expected to climb in the second half of the year, further weighing on consumers and businesses.

Business

Government to announce new scheme as it ramps up AI adoption with backing from Facebook owner Meta

Published

1 day ago

July 11, 2025

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Government to announce new scheme as it ramps up AI adoption with backing from Facebook owner Meta

The government is speeding up its adoption of AI to try and encourage economic growth – with backing from Facebook parent Meta.

It will today announce a $1m (£740,000) scheme to hire up to 10 AI “experts” to help with the adoption of the technology.

Sir Keir Starmer has spoken repeatedly about wanting to use the developing technology as part of his “plan for change” to improve the UK – with claims it could produce tens of billions in savings and efficiencies.

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The government is hoping the new hires could help with problems like translating classified documents en masse, speeding up planning applications or help with emergency responses when power or internet outages occur.

The funding for the roles is coming from Meta, through the Alan Turing Institute. Adverts will go live next week, with the new fellowships expected to start at the beginning of 2026.

Technology Secretary Peter Kyle said: “This fellowship is the best of AI in action – open, practical, and built for public good. It’s about delivery, not just ideas – creating real tools that help government work better for people.”

He added: “The fellowship will help scale that kind of impact across government, and develop sovereign capabilities where the UK must lead, like national security and critical infrastructure.”

The projects will all be based on open source models, meaning there will be a minimal cost for the government when it comes to licensing.

Meta describes its own AI model, Llama, as open source, although there are questions around whether it truly qualifies for that title due to parts of its code base not being published.

The owner of Facebook has also sponsored several studies into the benefits of government adopting more open source AI tools.

Mr Kyle’s Department for Science and Technology has been working on its mission to increase the uptake of AI within government, including through the artificial intelligence “incubator”, under which these fellowships will fall.

The secretary of state has pointed to the success of Caddy – a tool that helps call centre workers search for answers in official documents faster – and its expanding use across government as an example of an AI success story.

He said the tool, developed with Citizens Advice, shows how AI can “boost productivity, improve decision-making, and support frontline staff”. A trial suggested it could cut waiting times for calls in half.

My Kyle also recently announced a deal with Google to provide tech support to government and assist with modernisation of data.

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Joel Kaplan, the chief global affairs officer from Meta, said: “Open-source AI models are helping researchers and developers make major scientific and medical breakthroughs, and they have the potential to transform the delivery of public services too.

“This partnership with ATI will help the government access some of the brightest minds and the technology they need to solve big challenges – and to do it openly and in the public interest.”

Jean Innes, the head of the Alan Turing Institute, said: “These fellowships will offer an innovative way to match AI experts with the real world challenges our public services are facing.”