| Updated:
Wobbly growth is the opposite of what Rachel Reeves would have hoped for in her first six months as Chancellor.
While the headline figure on Friday morning said the UK economy had only expanded by 0.1 per cent in the last quarter of 2024, economists suggested that there was a more pressing matter at hand.
The Office for National Statistics showed that GDP per head had dropped since Labour took office in July: down 0.3 per cent in the third quarter and a further 0.1 per cent in the last quarter.
The hits to GDP per capita have been constant. There was a rise in GDP per capita in just four of the last 12 quarters.
In February this year, Panmure Liberum economist Simon French published a chart on X showing UK GDP per capita figures lagging behind a G7 average.
“There will be little electoral credit for growth until this inflects higher,” he said.
Speaking to City AM, French said recently published figures should not be taken as an indictment of Reeves’ fiscal policy choices made so far.
But he did say the metric will be essential to final judgements on whether the Chancellor by the next election.
“In terms of quarter-on-quarter, year-on-year [GDP per capita figures], particularly less than a year into the new government, attributing anything to Labour is a bit unfair,” he said.
“But by the end of the parliament, when you’ve had your time to change the parameters regarding population growth, regarding capital investment, you should be starting to see that come through in the GDP per capita numbers.”
As French and other economists point out, the metric is seen as an important indicator for how Brits fare against their G7 friends and families in Germany, America and Canada (the answer is worse).
“I think GDP per capita is probably the best measure that you would look at internationally to compare the size of economy over time and how it’s evolving in different countries,” said Sandra Horsfield, an economist at Investec.
“I think if [you’re measuring] how well is the economy performing, how much growth is the economy generating in its own right, then GDP per capita is the right measure,” she added.
The Chancellor is coming under pressure to make Brits richer in the short term.
And so, in the middle of her Spring Statement, she drifted away from GDP and highlighted one key OBR estimate as essential to her mission in delivering growth.
“The Office for Budget Responsibility (OBR) say today that people will be on average over £500 a year better off under this Labour government,” the resolute Chancellor told Parliament.
What she appeared to be pointing to was a paragraph in page 36 of the OBR’s economic and fiscal outlook report.
The report said: “We expect real household disposable income (RHDI) per person to grow at an average of around half a per cent a year in the five years from 2025-26 to 2029-30.”
It continued: “Growth [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.
