simonpittaway.bsky.social
Working on macro, wealth and household balance sheets at the Resolution Foundation.
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The key question is, with the Government seemingly constrained by its fiscal rules, will the Bank of England ride to the rescue with faster interest rate cuts?
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Today’s data was fortunately not as bad as feared, but the UK continues to go backwards on per capita growth. While the Chancellor has announced welcome measures to boost long-run growth in recent weeks, short-term action may be needed to get the economy out of its current slump.
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The weaker outlook could cause a fiscal headache for the Chancellor. The OBR had predicted growth of 0.7% in H2 2024, versus the 0.1% we got. Unless the OBR uprates its already optimistic view of future growth, this is likely to mean less tax revenue than previously forecast.
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Looking ahead, the early signs for 2025 aren’t great. Consumer confidence fell again in January, and the PMIs aren’t suggesting a significant rebound in activity at the start of this year.
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Indeed, a slowdown in households’ spending was one of the drivers of last year’s slowdown. But, as suggested by the key role of business-facing services above, it was far from the whole story (and the big ‘other’ bar for H2 suggests the picture could change in later releases).
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There were clear signs that consumer confidence weakened last year, with the GfK consumer confidence index remaining well below its long-run average and retail sales tailing off towards year-end.
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Within services, most subsectors slowed. But the most consequential slowdowns were in info & comms, admin services and transport. These three sectors were big drivers of growth in Q1, but their contributions turned negative in H2.
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Digging into the UK data, what drove the growth slowdown in 2024?
Most of the slowdown came from services, which contributed 1.3ppts to total growth in H1 and just 0.1ppts in H2. But note that the *level* of activity remains weakest in the production sector.
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The UK isn’t alone in its recent struggles – Canada and Germany have seen GDP per capita fall by slightly more over the past five years. But if the UK had managed even the average recovery of other G7 economies, annual GDP per capita would be £450 higher today.
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Our shocking record of per capita growth means that we’re now halfway through the 2020s and GDP per capita is lower than when the decade started. By my calculations, that hasn’t happened in any decade since the 1920s!
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In contrast to modest headline growth, GDP per capita shrank once again.
Worryingly, we’ve now only seen four quarters of per capita growth in the past three years of data (going back to the start of 2022).
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But, looking at 2024 as a whole, growth slowed dramatically over the course of the year. The UK economy grew 1.3% in the first half of 2024 and slowed to just 0.1% in the second half – the sharpest slowdown outside of the pandemic since 2010.
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Q4 growth was rescued by a resurgence in services in December (professional services in particular). The services reading for December was quite a bit stronger than suggested by survey data and should be taken with more than the usual dose of salt at this stage in the data cycle.
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*last two years
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I've been looking at this data ahead of our event tomorrow, discussing what recent market jitters mean for the UK outlook. No promises of an answer to this question but it should be great event. Sign up at the link below if interested.
www.resolutionfoundation.org/events/the-j...
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Thanks Mike!
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If you want more detail on this, the OECD-Eurostat PPP manual has a whole section on health expenditure.
www.oecd.org/en/publicati...
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Good question. The OECD imputes prices for non-market activity. The "free at the point of service" bit does appear in our calculations though. It shows up in health having a very low weight in UK household expenditure (e.g. see Figure 2 from our paper below). US weight is much higher for example.
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This is all covered in a new paper from me and RF Research Trainee Zaynah Janan. Check out the link below for all the details.
www.resolutionfoundation.org/publications...
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It’s a bit of a dead horse at this point, but these wider gaps between the UK and elsewhere are another reminder that our housing problem really is uniquely bad. It's good to see the Government taking this seriously – although action now needs to follow words.
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For example, adjusting for the local cost of things that lower-income families spend money on, the 10th-percentile German household is £2,300 richer than its British equivalent. That gap is a third (34 per cent) larger than that implied by an aggregate price level adjustment.
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Even with an aggregate PPP adjustment, there are big income gaps between poorer UK households and their counterparts in Western Europe. But if we use an income-specific PPP (i.e. weighting prices based on low- and middle-income spending baskets) these gaps widen further.
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It turns out that expensive housing outweighs cheap food, drink and communications (e.g. internet and phone bills) to make the UK an especially pricey place for poorer households.
This matters when comparing incomes here and abroad.
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To make this more concrete, we can plot the UK price of goods and services (relative to the OECD average) against the extent to which they’re over-represented in poorer households’ spending baskets. Housing sticks out as both expensive and especially important to poorer families.
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These price gaps play out differently across the income distribution, as poorer households spend more on essentials (like housing and food) and less on luxuries (like hospitality) than richer households.
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But that 8% premium is an average, and some things are much more expensive than others. For example, food and drink is 12% cheaper in the UK than the OECD average (reflecting both supermarket competition and VAT carve-outs) while housing is a massive *44%* more expensive.
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When it comes to prices, the OECD does great, detailed work in measuring them across countries. According to them, the things households buy are 8% more expensive in the UK than the OECD average.
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PPPs for housing are a bit weird - which we admittedly gloss over in this piece. @adamcorlett.bsky.social's paper from last year goes into the housing PPP data in more detail and looks at separate data on aspects of housing quality. www.resolutionfoundation.org/publications...