Economic Growth

Long Term Performance of UK Economy and Small Countries

This paper is one of a series that compares the performance of the UK against its peers (groups of large and advanced economies) and against 12 small advanced economies. This paper covers long term economic growth, measured by Gross Domestic Product (GDP) and levels and trends in GDP per capita, that is economic output per person.

Future papers will consider other measures including wellbeing and sustainability.

The focus of this analysis is long term. The graphs presented are based on data from the International Monetary Fund’s (IMF) World Economic Outlook Database and mostly show data on a decade by decade basis, for the years 1980, 1989, 1999, 2009 and 2019, so covering the 40 year period prior to the Covid-19 pandemic. Presenting the data in this way allows for a long run analysis, and so the trajectory that countries are on and avoids the distraction of changes in data from one year to the next which can arise from short term issues.

Key Points

UK economic growth has lagged behind the average for large and small advanced economies over the last four decades (pre-Covid), and in particular over the last two decades when the economic growth gap widened.

The economic growth gap between the UK and the small advanced economy group is particularly large, with all of the small advanced economies experiencing growth greater than the UK in the last two decades.

On average the small advanced economies experienced cumulative economic growth that was double that of the UK between 1999 and 2019.

In 1980 the UK’s GDP per capita was in line with or exceeded most advanced economies. By 2019, the gap between UK GDP per capita and the small advanced economies average had increased to 38% and the UK had fallen to just below the average for large advanced economies (having been 13% ahead in 1980).

The relative decline of the UK is particular marked in the last two decades, particularly compared to the small advanced economies. In 1999, only four of the 12 small advanced economies (Denmark, Norway, Sweden and Switzerland) had a GDP per capita that was higher than the UK and by 2019, 11 of the 12 did.

In 2019, the gap between the small economy average and the UK was more than $16,200 (£12,700) per person.

Gross Domestic Product (GDP)

Whilst it is an imperfect measure and does not include everything that is important in life, Gross Domestic Product (GDP) is the most commonly used measure of the economy. It includes all economic output in the year, that is all goods and services produced that have a price attached to them. The graphs are based on data on GDP in current prices, before adjusting for inflation.

Between 1980 and 2019 (i.e. pre Covid-19 pandemic), the UK economy’s cumulative GDP growth was lower than the average for large advanced economies, small advanced economies, the OECD members (a group of the 38 wealthiest economies), the G7 group of large economies (the largest 7 economies in the world) and the G20 group ((the largest 20 economies in the world). The average growth rate for the EU has been lower than for the UK, primarily as a result of the absorption of new members in central and eastern Europe. Over a 40 year period, UK GDP increased by around four and a half times (in nominal terms, that is, before taking account of inflation). In the same period the average large advanced economy and the average small advanced economy grew six fold.

GDP Growth Since 1980

Within the small advanced economy group, Singapore, Ireland and Israel grew most rapidly, as they transitioned to advanced economies. Almost all of the small advanced economies outperformed the UK in cumulative GDP growth between 1980 and 2019.

GDP Growth Since 1980 (UK & SAEs)

GDP Growth Since 1980 (UK & SAEs, excluding Singapore, Ireland and Israel)

The UK’s relatively poor performance is particularly noticeable in the last two decades, when the economy’s cumulative growth was 68% (in nominal terms), whilst the average large advanced economy grew by 93% and the average small advanced economy grew by 138%, that is, double the rate of the UK economy.

GDP Growth Since 1999

Between 1999 and 2019, the cumulative economic growth of the UK was less than all of the small advanced economies.

GDP Growth Since 1999

GDP per Capita

When comparing countries it is necessary to take account of the population of the country in order to get a sense of comparative living standards. GDP per capita is a better measure than GDP when comparing countries with different populations.

In 1980, the UK’s GDP per capita was close to the average for the G7 and was ahead of the large advanced economy group (13% more than the average), the OECD (19% more), the EU (23% more) and the G20 (49% more). In 1980, the small advanced economies group already had a higher GDP per capita than the UK, but the gap was small with the UK at 93% of the small advanced economies average.

By 2019, the gap between UK GDP per capita and the small advanced economies average had increased to 38% and the UK had fallen to just below the average for large advanced economies (having been 13% ahead in 1980).

The gap with the EU’s 27 members also narrowed, to 19% in 2019, indicating that the UK lost ground in comparison with a group that includes the emerging economies of central and eastern Europe and also the southern European economies that suffered most during the financial/euro crisis.

GDP per Capita Since 1980

The UK’s GDP per capita has been increasing in the last four decades, but the rate of increase has been slower than other advanced economies, in particular small advanced economies. When economic statistics are reported on the news they tend to be short term indicators, for example, the change in GDP or GDP per capita compared to the previous year. On these measures, it can appear that the gap between the performance of the UK economy and other advanced economies is small – and in a some years the UK may grow more than the average. However, even a modest underperformance results in a significant gap when it persists over decades.

The gap between the UK’s GDP per capita growth and other advanced economies has widened in the last two decades and particularly in the decade since the financial crisis. Between 1999 and 2019, UK nominal GDP per capita increased by 48%, compared with the 81% average for large advanced economies and the 112% average for small advanced economies.

GDP per Capita Since 1999

In 1999, the UK’s economic performance as measured by GDP per capita compared well with other advanced economies. It was slightly more (4%) than the small advanced economy average and considerably more (19%) than the large advanced economy average.

GDP per Capita, 1999

However, as a result of slow growth in the two decades that preceded the Covid-19 pandemic, by 2019, the large advanced economy average GDP per capita has surpassed the UK and the small advance economy average had grown to 38% more than the UK’s GDP per capita. The gap between the UK and the small economy average was more than $16,200 (£12,700) per person.

GDP per Capita, 2019

When the UK is compared with the small advanced economies individually, a similar picture of relative UK decline emerges, particularly in the last two decades.

In 1999, only four of the 12 small advanced economies (Denmark, Norway, Sweden and Switzerland) had a GDP per capita that was higher than the UK.

GDP per Capita, 1999

By 2019, 11 of the 12 small advanced economies had a higher GDP per capita than the UK, which had a similar GDP per capita to the 12^th, New Zealand.

GDP per Capita, 2019

Conclusions

UK economic growth has lagged behind the average for large and small advanced economies over the last four decades (pre-Covid), and in particular over the last two decades when the economic growth gap widened.

The economic growth gap between the UK and the small advanced economy group is particularly large, with all of the small advanced economies experiencing growth greater than the UK in the last two decades. On average the small advanced economies experienced cumulative economic growth that was double that of the UK between 1999 and 2019.

In 1980 the UK’s GDP per capita was in line with or exceeded most advanced economies. By 2019, the gap between UK GDP per capita and the small advanced economies average had increased to 38% and the UK had fallen to just below the average for large advanced economies (having been 13% ahead in 1980).

In 1999, only four of the 12 small advanced economies (Denmark, Norway, Sweden and Switzerland) had a GDP per capita that was higher than the UK and by 2019, 11 of the 12 did.

In 2019, the gap between the small economy average and the UK was more than $16,200 (£12,700) per person.

The UK is in long term relative economic decline, falling further and further behind countries of a similar size and stage of development as Scotland. The choice that Scotland faces is to remain part of the declining UK economy, or to realise agency and take responsibility for improving the performance of the Scottish economy.  

Appendix: Notes on Measures and Comparators

The purpose of the quantitative analysis that has been undertaken was to investigate how well the UK economy has been performing, over the long term.

How economic performance is best measured depends on the question that is being answered. How the economy is performing now compared to how it was performing last month or last year is a very different question to how the economy has performed over several decades.

The focus of this analysis is long term. The graphs presented mostly show data on a decade by decade basis, for the years 1980, 1989, 1999, 2009 and 2019, so covering the 40 year period prior to the Covid-19 pandemic. Presenting the data in this way allows for a long run analysis, and so the trajectory that countries are on and avoids the distraction of changes in data from one year to the next which can arise from short term issues.

The quantitative analysis also mainly covers the period to 2019, prior to the Covid-19 pandemic. This is because data for 2020 and 2021 was either not yet available at the time of writing, based on projections or less reliable than data for previous years (due to data collection challenges during the pandemic). The relative economic performance of the UK since Covid-19 struck is a subject for a separate analysis.

The analysis has used data from the IMF World Economic Outlook database, including nominal GDP and nominal GDP per capita. Other measures are available from the same source, including Purchasing Power Parity estimates that are designed to take account of differences in the costs of living in different countries and real GDP that takes account of inflation. Whichever measure is used shows similar patterns to those in the analysis of nominal GDP.

The comparator groups in the analysis were:

• OECD38: there are 38 member countries of the OECD: Australia, Austria, Belgium, Canada, Chile, Colombia, Costa Rica, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, Korea, Latvia, Lithuania, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Turkey, UK, USA. Excluding the UK, there are 37 comparator countries in this group;
• EU27: the 27 members of the EU: Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovak Republic, Slovenia, Spain, Sweden;
• G7: Canada, France, Germany, Italy, Japan, UK, USA. Excluding the UK, there are 6 comparator countries in this group;
• G20: there are 2O members of the G20: Argentina, Australia, Brazil, Canada, China, the European Union, France, Germany, India, Indonesia, Italy, Japan, Republic of Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, UK and USA). Excluding the UK and the EU, there are 18 comparator countries in this group;
• Large advanced economies (LAEs), there are 9 countries in this group, excluding the UK: Australia, Canada, France, Germany, Italy, Japan, Spain, South Korea, USA;
• Small advanced economies (SAEs), there are 12 countries in this group: Austria, Belgium, Denmark, Finland, Ireland, Israel, Netherlands, New Zealand, Norway, Singapore, Sweden, Switzerland.

In addition to the groups, the analysis also compares the UK to the 12 SAEs.