Britain’s economy will be closer to Guyana than the US on some measures in a decade’s time as Sir Keir Starmer fails to meaningfully boost living standards, economists have warned.
The Centre for Economics and Business Research (CEBR) has predicted that Britain’s growth in GDP per head – a proxy for living standards – will be among the weakest in the G7 over the next five years, trailing the US, Japan, Italy and Germany until the end of the decade.
Ranked in cash terms, the UK is on course to remain in 22nd place for GDP per head in 2029 as it is overtaken by both the UAE and Malta.
By 2039, UK GDP per capita is expected to be $86,141 (£68,800), pushing the UK up one place in the global league table. However, this is expected to be closer to Guyana’s GDP per head of $78,695, than the US, where GDP per person is projected to stand at $148,411.
The US is expected to cement its position in fifth place in the world over the CEBR’s forecast as Donald Trump’s deregulation agenda boosts the competitiveness of the world’s biggest economy.
While the CEBR’s measure does not account for inflation, which is a key component when measuring living standards, Pushpin Singh, of the consultancy, said the figures showed Britain risked “falling behind in the global economic race”.
He added that GDP per head was “forecast to lag far behind the US and inching closer to emerging markets like Guyana, highlighting a potential stagnation in living standards under Sir Keir Starmer’s leadership”.
The Prime Minister has made raising living standards across the country a priority during his premiership. However, recent figures suggest it has worsened on some measures since Labour took power.
Sir Keir conceded this month that it “will take some time” before living standards improve, adding that his Government could not fix everything “by Christmas”.
Mr Singh at the CEBR warned that dire productivity and a ballooning welfare bill since lockdown had helped to swell the size of the state, leading to higher taxes.
He said: “The way the UK economy has fared over the last five years, I would say we are much more similar to France than we are to the US. One key thing that is driving the US growth is productivity, which has been off the charts since the pandemic.
“UK welfare spending is still not as bad as France. But are we on the road there? I think so in terms of elevated welfare spending, tax receipts not being enough to make up for that welfare spending and other spending commitments such as the NHS and other civil service sector spending. And debt as a share of GDP is slowly ballooning up as well.”
Raising productivity is vital to lifting living standards, he said, something Britain’s public sector has struggled with.
“Productivity growth has been a huge issue in the UK, specifically within the civil service,” he said, noting that public services productivity remains below 1997 levels.
Britain is already on the brink of recession after statisticians revised down the country’s growth figures to zero as Labour swept to power. GDP per person also fell in the three months to the end of September, as surging immigration continues to weigh on this measure.
The Bank of England believes the economy continued to stagnate in the wake of Rachel Reeves’s record tax raid, leaving it dangerously close to slipping into a period of economic decline.
By contrast, the CEBR said Ireland was on course to rise up the GDP per head rankings to second place as multi-national companies continue to flock to the country to take advantage of its low corporation tax rates.
The consultancy’s latest annual forecasts showed Luxembourg, Ireland, Switzerland, Singapore and the US were set to have the highest GDP per head by 2039, with these countries characterised by low tax, low regulation or high productivity.
However, the CEBR’s forecasts of overall GDP showed the UK would continue to pull further ahead of France over the next 15 years in cash terms, as the country also closes the gap with Germany.
China is not forecast to overtake the US in pure GDP terms in the next 15 years as the country reels from its property crisis and increased tariffs as economists warned that “increased protectionism is here to stay”.
The CEBR said: “Another new reality for many economies is that younger generations will be poorer than their parents due to the impact on public finances of ageing populations. This will continue to cause political and societal frictions.”
A Treasury spokesman said: “We delivered a once-in-a-lifetime Budget to stabilise the public finances and fix the foundations of our crumbling public services without increasing income taxes on working people.
“Now that we have wiped the slate clean, we can focus on delivering our Plan for Change and kickstarting economic growth which is how people will feel better off. The OBR has concluded economic growth will increase to 2pc in 2025 and the OECD upgrade will mean the UK is the fastest-growing European economy in the G7 over the next three years.”
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Publish date : 2024-12-25 10:59:00
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