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Wobbly development is the alternative of what Rachel Reeves would have hoped for in her first six months as Chancellor.
Whereas the headline determine on Friday morning mentioned the UK economic system had solely expanded by 0.1 per cent within the final quarter of 2024, economists prompt that there was a extra urgent matter at hand.
The Workplace for Nationwide Statistics confirmed that GDP per head had dropped since Labour took workplace in July: down 0.3 per cent within the third quarter and an extra 0.1 per cent within the final quarter.
The hits to GDP per capita have been fixed. There was an increase in GDP per capita in simply 4 of the final 12 quarters.
In February this 12 months, Panmure Liberum economist Simon French revealed a chart on X displaying UK GDP per capita figures lagging behind a G7 common.
“There shall be little electoral credit score for development till this inflects increased,” he mentioned.
Talking to Metropolis AM, French mentioned just lately revealed figures shouldn’t be taken as an indictment of Reeves’ fiscal coverage decisions made to date.
However he did say the metric shall be important to ultimate judgements on whether or not the Chancellor by the following election.
“When it comes to quarter-on-quarter, year-on-year [GDP per capita figures], significantly lower than a 12 months into the brand new authorities, attributing something to Labour is a bit unfair,” he mentioned.
“However by the top of the parliament, if you’ve had your time to vary the parameters relating to inhabitants development, relating to capital funding, try to be beginning to see that come by way of within the GDP per capita numbers.”
As French and different economists level out, the metric is seen as an essential indicator for a way Brits fare in opposition to their G7 mates and households in Germany, America and Canada (the reply is worse).
“I feel GDP per capita might be the most effective measure that you’d take a look at internationally to check the dimensions of economic system over time and the way it’s evolving in several nations,” mentioned Sandra Horsfield, an economist at Investec.
“I feel if [you’re measuring] how properly is the economic system performing, how a lot development is the economic system producing in its personal proper, then GDP per capita is the correct measure,” she added.
The Chancellor is coming underneath strain to make Brits richer within the quick time period.
And so, in the midst of her Spring Assertion, she drifted away from GDP and highlighted one key OBR estimate as important to her mission in delivering development.
“The Workplace for Price range Accountability (OBR) say in the present day that folks shall be on common over £500 a 12 months higher off underneath this Labour authorities,” the resolute Chancellor instructed Parliament.
What she gave the impression to be pointing to was a paragraph in web page 36 of the OBR’s financial and monetary outlook report.
The report mentioned: “We count on actual family disposable revenue (RHDI) per individual to develop at a median of round half a per cent a 12 months within the 5 years from 2025-26 to 2029-30.”
It continued: “Development [in RHDI) is projected to vary significantly around this average, first slowing sharply from 2.5 per cent in 2024-25 to almost no growth in 2027-28.”
Her reliance on RHDI has come under intense scrutiny since the Spring Statement.
The left-leaning think tank Resolution Foundation made an independent analysis of data put out by the OBR and published figures that come into direct conflict with her Reeves’ statement.
“The combination of a weak economic outlook and benefit cuts that fall disproportionately on lower-income families means that living standards are on track to fall over the next five years for the poorest half of households by £500 on average,” it said.
Reeves has remained defiant.
In response to data released by the ONS, which revealed that RHDI had increased by 1.7 per cent in the fourth quarter and 0.6 per cent in the month before, the Chancellor said “living standards are growing at their fastest rate in two years”.
“Getting more money in working people’s pockets is my number one mission,” she said.
The caveat was that the statistics body claimed this increase was mostly used to increase savings, stumping growth in GDP terms which only came out at 0.1 per cent higher in the final quarter.
This is where the clashes between data begin to deepen as Reeves appears to be enjoying a pick-and-choose approach to measuring growth.
But it is firstly an economist’s problem.
“The issue at the moment is: how do you measure income?” Horsfield reflected.
“If we come to the numbers that we have at the moment it would seem to indicate that incomes are growing because employment is growing more sharply than seems to be the way some other key indicators have at this time.”
The conundrum around growth measurements is spilling over into a heated political debate.
Reform UK’s Deputy Leader Richard Tice believes GDP, the most frequently-used growth indicator, is “not reflective of the position that ordinary people in Britain find themselves in” given high immigration “artificially inflates our economy”.
“By measuring GDP per head we can get a clearer picture of how this government is performing. When looking at these figures, it’s clear that people are getting poorer, no thanks Labour’s anti-growth and anti-business agenda, with GDP per capita falling consistently for the last two years,” he told City AM.
Tice echoes former Tory leadership candidate James Cleverly, who said during his campaign last year that GDP should only be reported per capita so the Treasury could not “mask low growth with high migration”.
Shadow Chancellor Mel Stride, meanwhile, pointed out in comments provided to City AM that figures released on Friday morning showing that GDP per head had fallen again meant Brits were “getting poorer”.
“The Chancellor and Prime Minister continue to tell us we’ll be better off – they are totally out of touch with reality,” he said.
Stride’s comments raise fundamental questions about how the Chancellor wants to measure her success and what “growth” ultimately means for the UK.
This comes into sharper focus when one considers how Treasury minister Torsten Bell frequently highlighted the importance of GDP per capita while working at the Resolution Foundation before last year’s election
GDP per capita is” what ultimately matters for our living standards”, he said in one tweet a year ago.
Growth indicators will always be the subject of great debate among economists and analysts. It depends on perspectives and the relevance of different measures change according to specific situations.
But by jumping between indicators to measure her achievements, the Chancellor risks confusing economists – as well as the British electorate.
