Reasons to be Cheerful, Part 1

April 26, 2024

My favourite Ian Dury and The Blockheads song, released in the summer of 1979, is a simple list of reasons to be cheerful; it was written and recorded in Italy and was inspired by a near-fatal accident involving one of the Band's roadies. Apart from being a great song, I thought it would also serve as a very appropriate title for this, my first blog about the UK economy, because, as I hope to show you, there are many reasons to be cheerful about the UK as it emerges from the aftermath of the global pandemic and the energy price crisis that followed the war in Ukraine. If you feel so inclined, you can listen as you read...

For reasons I often struggle to comprehend, the consensus narrative on the UK economy appears to be overwhelmingly negative. Maybe this reflects a wider, more generally downbeat societal mood catalysed and promoted by conventional and social media that seems to thrive on a diet of negativity. However, in the world of economics, in seeking the truth, reliable data, and facts are a source of reassurance that is often overlooked. As I have often said, consensus economic commentary is predominantly long on opinions and short on facts.

In this three-part series, "Reasons to be Cheerful", I hope to show why there are many good reasons to be cheerful about the UK economy's current state and how I expect it to perform over the next few years. Everything I say here will be backed up with supporting evidence and data; these will not just be opinions.

This first graphic sums up what I'll be covering over the three parts – if you want to make sure you don't miss parts two and three, you can subscribe below.

Infographic titled "Reasons to be Cheerful, UK edition". The graphic shows that the UK's real GDP growth is second to the USA and top among its peers in Europe. It explains what GDP is and how UK consumer spending is the engine that will drive the UK economy. It also explains that public sector finances are sustainable and the deficit is improving.

Consensus commentary – it's generally depressing

In preparing for this series, I have done something I normally try to avoid, which is reading popular media stories about the performance of the UK economy. Maybe not surprisingly, I have yet to encounter anything positive. Without going into too much detail, the headlines run along these lines:

Headlines including "why there's been an unprecedented fall in living standards", "how bad is the UK economy?", "UK economy has been in a bad position for more than a year", "UK's weak economy is taking its toll on its labour market"

I think you can get the picture. In general terms, the tone is overwhelmingly negative. The consensus narrative paints a picture of a UK economy that is struggling to grow, that has underperformed its peers and, is afflicted by a general malaise which is destined to continue. Whilst it would be wrong not to acknowledge many of the challenges confronting the economy (which I will do later), my conclusion is that, like so many widely held consensual views, these broad downbeat conclusions are just wrong.

Let me show you why I say that.

Let's start with the widely held view that the UK economy has been a laggard compared with its peers. Here are some facts.

This chart shows how the UK economy has performed relative to its nearest peers in Europe and the US from 2010 through 2023.

Chart showing Real GDP for USA, UK, Germany, France, Italy. UK's real GDP is second only to the USA in this group.

The second chart below shows the average GDP growth rate over the same period against a wider G7 peer group.

A bar graph showing Real GDP growth averages from 2010 to 2019. The UK is in the middle of the group containing Italy, Japan, France, UK, Germany, Canada, USA with 2.0% growth.

What these data show is that the true story of the UK's economic performance over the last 14 years is quite different from what you may have been led to believe. Clearly, the US economy has shown a clean pair of heels to all this group, but significantly, the UK has not been a serial underperformer, far from it.

The table below gives a little bit more colour on broad components of the UK economy and their contribution to its growth over a longer period. Interestingly, the biggest contributor to the slower growth seen over the ten years to 2019 was weaker growth in government consumption. Of course, importantly, this period also covers the aftermath of the financial crisis which had a disproportionately damaging impact on the UK economy because of the size of its pre-crisis financial sector.

Contribution to the UK economy's growth (%)
Source: Lazarus Economics, ONS
Year Households General government Fixed investment Exports Imports Trade balance Real GDP
1998-2007 1.9 0.6 0.6 1.1 1.4 -0.3 2.8
2010-2019 1.3 0.2 0.6 1.0 1.2 -0.2 2.0
1950-2023 1.4 0.4 0.6 0.7 0.7 0.0 2.4

So, my first myth-busting conclusion is that the UK economy has performed relatively well since it emerged from the depths of the financial crisis and that its growth compares very favourably with its peers across Europe.

In parts two and three of Reasons to be Cheerful, we'll look at public sector finances and consumer spending to challenge some more commonly held views. Be sure to subscribe below to get them in your inbox!

Disclaimer: These articles are provided for information purposes only. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

Subscribe to receive Woodford Views in your Inbox

Subscribe for insightful analysis that breaks free from mainstream narratives.