Corrugated economy
UK GDP rose by 0.4% in June 2025. It seems unlikely that such a rate will continue: growth at that rate has often been followed by lower growth in the past (see chart). The monthly pattern of growth post-Covid has been corrugated: monthly gains followed by monthly declines, with a weak overall trend.
If that erratic pattern could be overcome and growth raised to, say, 2% p.a., more jobs would be created, more government revenue would be generated and the UK’s standing in the world could be rerated.
But there is no magic wand that can be used to generate faster growth. Fundamentally, growth depends on two trends: the number of workers and how productive they are. The trend in both is not encouraging.
How many workers?
It is true that the UK population is continuing to increase. That is almost entirely due to net immigration. But the natural rate of increase - births minus deaths - has ground to a halt and is forecast to remain close to zero (on the United Nations’ median population projections) for many decades. Furthermore, net immigration has fallen: 431,000 in 2024, down from 860,000 in 2023, with fewer people arriving on work and study visas and higher emigration by students who came after the pandemic.
Arrivals by ‘small boats’ across the English Channel were around 37,000 people in 2024, 25% more than the year before. Between 2018 and 2024, citizens of six countries – Iran, Afghanistan, Iraq, Albania, Syria and Eritrea – made up 70% of people crossing in small boats, according to the Oxford University Migration Observatory.
Productivity
Growth of productivity (GDP per hour worked) ran at 2% p.a. before the global financial crisis of 2008/9. Since then, it has averaged 0.4% p.a. Part of that reflects low rates of investment, especially since the Brexit vote in 2016. The government plans to stimulate investment through public sector support for private sector initiatives, especially through a freeing up of the planning system. There will be direct government spending as well, notably on housing and green investment. But the scope for expansionary fiscal policy is very limited and a shortage of workers will hamper public sector investment projects (notably on housing, where the target of building 1.5 million homes during the government’s five-year term looks highly unrealistic).
Weak, corrugated growth is likely to continue. For two articles on the problems of generating more growth see this article by Paul Johnson at the IFS:
and this one by Daniel Susskind at the LSE https://www.ft.com/content/06363b83-3f17-48aa-b111-19851ed227b8?shareType=nongift