style=”color:#35;666666;”gt;Compare the UK with the US, and Uncle Sam always seems
to do better. In recent years the gap has reduced, with the UK managing to avoid
recession when the US didn’t, but if we look at a GDP comparison covering the last
five years - a period of remarkable success for the UK - we have generally lagged
behind the US.
But maybe this is about to change. With most economists expecting a significant
slow down Stateside next year, perhaps the UK can move ahead at last. And then, in
the years that follow, enjoy above trend growth without inflation setting in - at least
that appears to be the conclusion one can draw from a new report by the highly
respected ITEM Club, from Ernst and Young.
According to the ITEM Club, the UK is suffering from an output gap of 1 percent,
meaning that the UK should be able to produce 1 percent more goods and services
than it currently does, and should consequently be able to grow by 3 percent a year
over the next few years. This compares to official Treasury estimates of 2.5 percent.
If the Item club is right, Gordon Brown should suddenly find his coffers brimming
over, with government finances in much better shape than had previously been
expected.
The ITEM Club’s Peter Spencer said: “In the short term this will help to contain
inflationary pressures, without constraining economic growth - which has positive
implications for monetary and fiscal policy. If our assessment of growth and GDP is
correct, everything points to a ‘Brown Bonanza’ for the Treasury this autumn.”
What explains this remarkably positive outlook for the UK economy? “Quite
simply,” says Peter Spencer, “the UK’s labour supply has expanded in the last
decade, largely because of the influx of immigrants to the UK from the EU accession
countries since 2004.
“There has also been a significant rise in the numbers of older and retirement age
workers - offsetting a decline in the number of 16-24 year olds in employment. Add
to this the steady growth of around 3 per cent in the value of capital stock - one
measure of investment spending - and the UK economy is in line to grow on average
between 2.75% and 3% over the next few years.”
Since 1999, the rise in immigration to the UK has had the single biggest impact
on the growth of the population and is an increasingly important feature of the UK
labour market. In 2005 the UK population grew at its fastest rate in forty years,
largely due to the number of migrant workers arriving from Central and Eastern
Europe, which has boosted the labour force by almost 600,000 since 2004. And
Spencer believes this trend will continue, albeit at a slower pace.
For further information
ITEM Club says UK has the capacity to grow faster ITEM Club
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