Market Update 19th February 2024

Hard work to make it add up

UK GDP fell -0.3% in Q4 2023 following on from -0.1% in Q3, according to the ONS. This means the UK is in a recession. If we look at the ONS monthly index, GDP was exactly flat over 2023, despite the Prime Minister’s “promise” it would grow. GDP per head is even more disappointing, finishing the year at -0.7%, seasonally adjusted.

UK trend GDP is currently estimated to be 24% below its pre-GFC level. This equates to around £23,000 per household per year. 7% of this is a further leg down caused by covid. Both the GFC and covid were global issues, so why is the UK lagging? In August 2022 Liz Truss’s patriotism must have momentarily deserted her in a leaked recording where she said she thought UK workers needed “more graft” and suggested they lacked the “skill and application” of foreign workers. Jacob Rees-Mogg agreed with her, calling her comments “sensible”.

As with finances, this is an extrapolation from the personal to the national level that doesn’t work. Productivity in the economic sense isn’t really about blood and sweat. You don’t make more cars for example in 2024 by rolling up your sleeves and digging deep, you make more cars with a well trained workforce on a faster, more efficient production line, which comes from investment, R&D, infrastructure, economic incentives and well worked regulation. You might notice a fair bit of this is in the government’s remit. I’m not sure I’m allowed to speculate how much time Liz and Jacob might have spent on a car production line, but you can.

UK productivity does lag its peers particularly since 2007, but management blaming the staff for a lack of effort is a low blow. The ONS also produces a comparison of output per hour worked in the UK vs the rest of the G7, though the latest numbers only go up to 2021. Here the UK is slightly ahead of only Italy and Canada at £46.92 per hour, well behind Germany, France and the US who are the highest at £58.88 – 25% higher than the UK. In terms of productivity growth, the UK has grown 24.5% since 2012, while Germany has grown 35%, US is up 29% and even Italy has grown 28% over the same period.

What does this mean for me and you? Again from the ONS, the average full time salary in the UK in 2007 was just over £24,000, and is now just under £35,000 – an increase of 46%, but over the same period, inflation has increased 60%, so a real terms cut of 14%. Young adults in the UK have significantly less belief in upward mobility than other countries. Only 40% of people aged 18-29 believe that hard work will lead to a better life, vs 60% in the US, or nearly 50% in Germany.

The government reported the average price of a house in the UK in December 2023 was £302,164. In December 2007 it was £189,193 – also an increase of 60%, in line with wider inflation. The really large housing gains are from just before 2007 – the UK housing index is up 266% from 1999 for example.

Home ownership amongst young people in the UK collapsed between 2000-2010 – far in excess of comparable countries. The average house now costs just under 9x the average salary. The last time it was at this level was 1876. In 1920 it was 2x salary, it rose to about 4x around the Second World War, then bounced along at about 4x for most of the rest of the century. 80 years of broadly affordable housing, which largely disappeared between 2000-2010, but has carried on increasing since as well. Young people in the UK have been told to eat fewer avocados and cancel Netflix to save money to buy a house. The median first time deposit in the UK is 25% and it would take around 13 years to save this in the UK (based on saving 15% of disposable household income). It is 30 years if you want to live in London. That’s a lot of avocados.

In other news, there has been a generational shift in voting intentions of young people, which is specific to the UK. Only around 10% of 18-34 year olds are likely to vote Conservative in the UK. This is down from around 35% in 2015, which is roughly comparable with for example the US and other European countries. Almost 40% of voters in their 20s voted for Trump in 2016 and this number is likely to stay the same if he runs in November. An attempted coup, criminal charges and $350m in fines don’t seem to have made much difference.

Robert Fullerton – Senior Research Analyst

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