We have compared the UK’s economic performance against that of its natural peer group, the other G7 economies, over the past 15 years as well as looking at prospects for the next five years.
We found that during the rapid economic expansion of the decade preceding the onset of global financial crisis in 2007, the UK economy recorded impressive growth relative to others in the G7 (slightly behind Canada and ahead of the rest of this group, including the US). The UK also achieved reductions in unemployment, low and stable inflation, and high growth in labour productivity over this period.
Over the recovery period since mid-2009, by contrast, growth in the UK has been relatively weak in comparison to the US, Germany, Canada, France and Japan, while UK inflation and (to a lesser degree) unemployment has continued to rise. The UK has reduced its structural budget deficit more than any other G7 country since 2009, but the wider economic benefits of this have yet to come through.
Our review of medium term prospects suggests that this recent relative weakness should not persist, however, with UK average growth being close to the middle of the G7 range over the period to 2016, while inflation should come down to closer to the G7 norm over this period.
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