United Kingdom and Channel Islands
Headline economic measures such as GDP suggest that the UK has more than recovered from the 2008-09 recession, other metrics focussed on individuals and households tell a different story. On a per person basis, UK economic output stood at the beginning of 2015 still below its pre-crisis level. Wages fell consistently in real terms for five years until the end of 2014, and the number of people working part time only because they couldn’t find full time employment stands well above pre crisis averages.
However, 2015 looks to be the year when households start to finally feel the full effects of recovery. Unemployment is likely to reach levels last seen in 2007 and wage growth is projected to accelerate. In addition, inflation is likely to remain on the low side for much of the year, on the back of sharp declines in the oil price feeding through into lower transport and utility costs, as well as falling food prices due to competition in the UK market and lower global commodity prices. With inflation so low, wages will be boosted further in real terms.
The UK outlook for the five years to 2020 is much more buoyant than the half decade that preceded it. Average annual economic growth of around 2% is projected for the period, helping to further boost household incomes in real terms and bring down underemployment in the labour market. This growth is slower than the long term average for the UK, partly because of a relatively weak outlook for trade. Roughly half of the UK’s goods exports are sent to the EU, but the economic bloc is projected to see only relatively weak expansion over the time horizon, limiting the extent to which the UK can achieve trade-led growth.
A further factor constraining UK economic growth is the need for further fiscal austerity in 2015 and beyond. The Office for Budget Responsibility projections from December 2014 have the government’s spending deficit closing to a small surplus by 2018/19, but this is on the back of additional deep spending cuts and a robust increase in tax receipts. Any watering down of austerity measures, or a slower pickup in receipts than expected, will result in the deficit remaining into the next decade.