Over the past two years, growth in the UK has outpaced all other members of the G7, but has been below that of some other members of the OECD group of advanced economies (Chart B). It is worth putting this recent pick-up into the context of the latest estimates of the path of GDP over the late 2000s recession and subsequent recovery. The UK is not the only country to have made significant revisions to its GDP estimates. Other EU economies have made revisions following their own implementation of ESA10 and other advanced economies have implemented similar changes resulting from the adoption of the System of National Accounts 2008.
Following the onset of the financial crisis, the UK experienced a relatively sharp contraction of 6.0 per cent, which was similar to the euro area as a whole. Of the G7 economies, Germany, Italy and Japan experienced deeper recessions, with milder recessions in France, the US and Canada (Chart C). The UK recovery was initially subdued, only keeping pace with Japan and the euro area as a whole, while growth in Germany, the US and Canada was significantly stronger. However, over the past two years UK growth has gathered pace. As a result, relative to the pre-crisis peak, the UK now lags behind only the US and Canada within the G7.
Chart B: OECD GDP growth 2012Q3-2014Q2 (per cent, left) Chart C: G7 real GDP since 2008Q1 (right)
Relative to the recovery in GDP, employment growth since the crisis has been strong in the UK. Employment is now around 4 per cent higher than in the first quarter of 2008. Canada and Germany are the only G7 economies with employment further above its 2008 level (Chart D). The flip side is that productivity growth has been very weak, with only Italy further below its pre-crisis level than the UK (Chart E). Both Germany and Japan experienced a greater peak-to-trough fall in productivity, but have since recovered more of that loss. Meanwhile productivity in the UK has stagnated and is currently 3 per cent lower than in the first quarter of 2008. This highlights that the recent weakness in UK productivity growth is not only a puzzle relative to past UK performance, but also a puzzle relative to the performance of other major advanced economies. Judging when productivity growth in the UK will pick up is the biggest uncertainty in our economy forecast. Productivity growth is an essential ingredient of sustainable GDP growth and higher real wages, which in turn underpin our fiscal forecast.