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[...]The UK’s economic performance relative to the other big EU-15 economies – France, Germany, Italy and Spain – does not stand out as impressive, at least once we adjust for the different prices of goods and services across these countries. UK economic growth between 2000 and 2015 lagged behind Spain and Germany but also France, a country that has become synonymous in Britain with economic weakness.
Looking at economic growth per capita further tarnishes the image of the UK as a strong performer. Germany emerges as by far the best performing big EU-15 economy, with the UK fourth, ahead of only Italy. The British are no richer relative to the EU-15 average than they were 15 years ago. Moreover, the average Briton has to work more hours than the average Frenchman or German to achieve that level of income.
Indeed, it is when we turn to productivity that the UK’s status as a strong economic performer is most clearly exposed as wishful thinking. Britain’s GDP per hour worked has fallen to just 90 per cent of the EU-15 average, 25 per cent below French and German levels. [...]
Not only is the UK’s performance mediocre, it is highly skewed by London and its environs. Apart from London, just one British region – the south-east of England – has a GDP per capita in excess of the EU-15 average. And far from catching up with the richer regions of the EU, most poor UK regions have been falling further behind.
The UK’s poor performance does not seem to be down to poor macroeconomic policies, at least in comparison to the other big EU-15 economies. There is little doubt that the British government overdid austerity in the 2010-12 period, but not by as much as the French, Italian or Spanish. Nor is there any evidence that government borrowing is ‘crowding out’ private sector investment; interest rates are extremely low, pointing to a surfeit of savings over profitable investment opportunities. For its part, the Bank of England has been more aggressive about cutting interest rates and embarking on unconventional monetary policies, such as quantitative easing, than the European Central Bank. [...]
By hitting economic growth and exacerbating regional disparities, could Brexit force the British authorities to address the country’s supply-side problems? The government will no doubt provide some fiscal stimulus to counter the weakening of economic growth caused by Brexit. But it is unlikely to be the kind of long-term investment in infrastructure and skills needed by the UK. [...]
The UK economy was a mediocre performer in an EU-15 context even before Brexit. But quitting the EU’s single market threatens to further erode the country’s economic dynamism and to worsen its striking regional imbalances.