Has the British economy begun its quiet recovery?

 

 British

Has the British economy begun its quiet recovery?

Rotherham records highest productivity increase in the north of England since 2004.

The Economist recently published a funny, if somewhat random, editorial on the current state of the UK, describing it as a national version of Poundland, where everything was sold for one pound or less.

Other accompanying articles addressed some of the many issues facing the UK, including long-term debt sustainability, which is understandable in light of the Office for Budget Responsibility's recent annual report, which presents a bleak and shocking reading of the financial situation.

This focus largely reflects the general mood of the British public about their country and its economic situation.

However, despite the prevailing pessimism and anxiety, it is believed that there are profound positive developments that are not receiving enough attention, and perhaps even not being recognized by policymakers, according to Project Syndicate.

The first of these developments is the slow but significant shift in relative prices within the real estate market, a trend that began about a decade ago and continues, albeit rarely discussed.

Most days, one can read a new article about unaffordable, high housing prices, and the focus is often on London.

While prices are still exorbitant—more than six times the median income—they are down from their levels of nearly eight times a decade ago.

This means that the situation is still difficult, but it is better than it was before.

These developments are attributed to several factors, including the introduction of a buy-to-let property tax in 2015, followed by the Brexit referendum the following year, along with other policies to curb demand, and the spread of remote working that began during the COVID-19 pandemic.

The non-resident tax system may also have played a role.

Additionally, London is no longer the economic powerhouse it once was, and its weak productivity since the turn of the millennium has been a major factor in the declining productivity performance of the UK as a whole.

However, the gradual decline in London property prices is ultimately a positive development. The housing affordability problem, along with the obstacles to the labor market and social mobility, could be mitigated if this trend continues.

Interestingly, this continued decline in London property prices does not appear to have had negative systemic financial effects, unlike previous periods when property price bubbles burst.

Nor does it appear to have had a negative impact on other regions. Indeed, some areas may be immune or even benefit from the shift in housing demand patterns, which may reflect changes in relative economic performance between regions.

This brings us to the second positive development: relative regional productivity.

The Office for National Statistics' annual GDP by Region report, released last month, revealed more positive indicators regarding growth and productivity in Greater Manchester. Productivity growth in this metropolitan area has been nearly three times that of London since 2004.

As a result, productivity levels there are now only 35% lower than London's, compared to approximately 50% previously.

This is an important development, as replicating Greater Manchester's experience in other metropolitan areas could boost the UK's long-term economic growth performance.

Data from individual counties suggests other areas of hope.

For example, Rotherham in South Yorkshire recorded the highest productivity increase in the north of England since 2004.

This likely reflects the influence of the Advanced Manufacturing Research Centre, which is physically located on the outskirts of Sheffield but administratively affiliated with Rotherham.

These two developments are significant in their own right, yet they are remarkably under-reported.