From the TUC

What level of growth would be a ‘success’?

24 Apr 2012, by Guest in Economics

Tomorrow we get GDP figures for the first quarter. Given this it seems like a good time to look (once again) at what is happening to national income per head.  

2011 is widely accepted as a bad year for the UK economy – it was characterised by low growth overall, falling domestic demand, a squeeze on living standards and rising unemployment.

But in many ways it was actually even worse than is widely acknowledge – GDP per capita (i.e. growth once we account for population change) actually fell.

The chart below shows the level of GDP per capita over the past decade and how it looks set to pan out (using the ONS population growth forecast of 0.8% per year and the OBR’s most recent GDP forecasts):

A few points leap out:

  • GDP Per capita fell in 2008 and 2009 before recovery a bit in 2010 and then contracting again in 2011.
  • GDP per capita is forecast to be flat in 2012. The OBR’s growth forecast of 0.8% is equal to expected population growth.
  • GDP per capita will not reach 2007 levels until 2016 on the current forecasts.

To me, that last point really is crucial – in terms of national income per head we are already in a lot decade.

All of this helps but the weakness of the UK’s ‘recovery’ into perspective and raises interesting questions about what pace of growth should be regarded as a ‘success’.

GDP per capita grew at an annual average rate of 2.8% from 1993 to 2007 (i.e. between the 1990s recession and the Great Recession). To be on track to match that we’d need a quarterly figure around 0.7% tomorrow, a pace of growth the economy which would then have to match for the rest of the year.

If the economy could match the pre-recession rate of growth of GDP per capita, the impact would be dramatic.


As the chart makes clear, if the economy could experience ‘normal’ rates of growth rather the low ones forecast by the OBR then income per head would regain 2007 levels in 2014 – two year ahead of what we currently expect.  By 2016, income per head would be £1,607 higher than what the OBR currently forecasts.

Sadly achieving this growth at the moment seems unlikely, but the government shouldn’t be allowed to celebrate any weak growth we do get as a sign of ‘success’.

2 Responses to What level of growth would be a ‘success’?

  1. GDP: one chart | ToUChstone blog: A public policy blog from the TUC
    Apr 25th 2012, 10:10 am

    […] coming out of a recession we should be looking for about one percentage point more than that. As Duncan has pointed out, we need economic growth of about 0.2 per cent a quarter just to keep up with […]

  2. This is what a recession looks like | Liberal Conspiracy
    Apr 25th 2012, 3:49 pm

    […] Duncan has pointed out, we need economic growth of about 0.2 per cent a quarter just to keep up with […]