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developed countries. 19 The recent weakness in productivity has occurred alongside strong
employment growth. Since Q1 2010 the UK has seen the fastest growth in employment of all
the G7 countries.
1.17 Productivity growth is the main factor determining average living standards in the
medium term. The government has implemented far-reaching structural reforms to improve
the UK’s long-term productivity. The OECD Secretary-General in February 2015 set out that the
“United Kingdom has made tremendous progress in recovering from the largest economic crisis
in 80 years. And this progress has laid the foundations for further reforms needed to boost
productivity and inclusiveness”. 20
UK rebalancing, investment and trade
1.18 As the recovery has become established, growth has been broadly balanced across sectors,
and it is also becoming more balanced across the UK. There has been widespread growth across
all major sectors since the start of 2013, including manufacturing, construction and services.
1.19 Business investment has been a key factor driving the recovery. Business investment has
increased 25.6% since Q1 2010 and is 5.3% above its pre-crisis peak in Q2 2008. Business
investment in 2014 saw the largest annual growth since 2007. Since Q1 2010, business
investment has grown 4 times faster than household consumption. The OBR forecasts
2.6% household consumption growth in 2015, alongside continued strong business investment
growth of 5.1% in 2015. Budget 2015 announces a package of measures to support investment
in the oil and gas sector. The OBR’s assessment is these measures will boost the level of oil
production by 2019 by 15%, equivalent to around 0.1% of GDP. 21
1.20 This government is committed to rebalancing growth across the regions and nations of
the UK and is committed to the creation of a Northern Powerhouse. The latest data shows that
output per head in the North West, North East, West Midlands and Wales all grew faster than
London in 2013. In addition, in the year to the end of 2014, employment in the North East,
North West and the East Midlands all grew faster than in London.
1.21 The UK is one of the most open economies in the world, with significant trade and
financial links with other countries. UK exports performance is highly dependent on the
economic performance of the euro area, the UK’s largest trading partner.
1.22 The UK’s current account deficit widened to 6.0% of GDP in Q3 2014. Chart 1.4 shows
the income balance has declined since early 2012, reflecting lower income received from
investment abroad. Weaker euro area growth and global prospects have seen UK investments
abroad yield lower returns while, in contrast, as the UK economy has continued to recover, the
payments made on foreign holdings of UK investment have increased. The OBR forecasts that
the current account deficit will diminish over the forecast period from 4.3% of GDP in 2015, to
3.2% in 2016 and 2.3% in 2019.
1.23 Weak euro area growth has meant goods exports to EU countries have been subdued. But
UK exporters have continued to expand in other markets and the volume of goods exports to
non-EU countries has increased by 24% since Q1 2010. The UK’s trade deficit in the 3 months
to January 2015 was £4.4 billion, the lowest deficit since October 2000. The narrowing of the
deficit in the 3 months to January 2015 reflected a fall of £1.2 billion in UK imports and an
increase in exports of £2.4 billion.
19
‘The UK productivity puzzle: an international perspective’, speech by Martin Weale, December 2014.
20
Remarks by Angel Gurria for the ‘Economic Survey of the United Kingdom 2015’, OECD, February 2015.
21
‘Economic and fiscal outlook’, OBR, March 2015.
14 Budget 2015