Living standards key to UK election as data shows slowest recovery since 1920s

Living standards have been thrust to the centre of the general election campaign as official figures showed Britain is undergoing the slowest recovery since the 1920s and GDP per head still remains lower than levels before the recession.

Labour has accused the Conservatives of complacency on the grounds that people are still worse off after the Office for National Statistics showed GDP per head remains 1.2% below pre-economic downturn levels.

But George Osborne, the chancellor, hailed “a hat-trick of good news” after figures from the ONS showed the UK economy grew faster than expected in the final months of last year and consumer confidence has risen to its highest level in 12 years. The figures also showed that real household disposable income has nudged ahead to stand 0.19% higher than the level inherited by the coalition in May 2010.

Labour and the Tories clashed on the economy after the ONS figures provided armoury for both campaigns. The Tories welcomed the figures, which show that GDP growth for the fourth quarter of 2014 was revised to 0.6%, up from a previous estimate of 0.5% and matching the pace of expansion in the third quarter. For the year as a whole, growth was upgraded to 2.8%, from 2.6%, and was the fastest expansion since 2006.

Osborne said: “Today we’ve got a hat-trick of good news about the British economy and with 37 days to go the election it’s another sign that changing course would put recovery at risk.

“We’ve had a significant upgrade to GDP, the highest consumer confidence for over 12 years and confirmation that living standards are higher than they were at the last election. This is good news for families and businesses across the country.”

But Labour highlighted figures showing that GDP per head growth has been slower than overall economic growth, helping to explain why many people do not consider their living standards to be noticeably improving.

The ONS said GDP per head increased by 0.5% between the third and fourth quarters and was up 2.2% for the year as a whole. It remains 1.2% below pre-economic downturn levels.

Statisticians also said net national disposable income (NNDI) per head, which represents the income available to UK residents, had remained broadly flat since the start of 2012 and remained 5.1% below pre-downturn levels.

Ed Balls, the shadow chancellor, said the Tories were wrongly telling voters they have “never had it so good” even though Britain is experiencing the slowest recovery in a century.

Speaking during a campaign visit to Swindon, Balls said: “This is a government which has presided over five years when wages have not kept pace with rising prices and family bills.

“George Osborne and David Cameron want to spend the next six weeks going round the country saying you are better off. I say ‘bring it on’ because working people are really struggling in our country and we can do better than this.”

The slight improvement in Britain’s economic growth was helped in part by a long-awaited rise in exports, according to new official figures.

Quarterly growth and levels of GDP

The ONS said net trade moved from being a drag on the economy in the third quarter to boosting growth while the services sector continued to power the economy. However, business investment fell 0.9% on the quarter, casting doubts over the outlook for growth.

There were also signs that households are dipping into savings to fuel spending, as the savings ratio dropped to 5.8% in the fourth quarter from 5.9% in the third quarter.

“It was encouraging to see a marked pickup in exports while consumer spending was solid,” said Howard Archer, economist at IHS Global Insight. “But the marked relapse in business investment was disappointing. Healthy business investment is vital if the UK is to significantly lift productivity and generate sustainable balanced growth.”

Rebalancing worries

The British Chambers of Commerce expressed concern about a failure to rebalance the UK economy, despite plans by the coalition government to boost exports and reduce dependence on consumer spending.

The ONS figures showed all parts of the economy except the dominant services sector, remained below their pre-crisis levels.

David Kern, chief economist at the BCC, said while the upgrade in growth was positive, some of the details “highlight the need to shift our economy towards a more sustainable model”.

“As in recent quarters, services and consumer spending were the main drivers of the economy. But while a healthy consumer sector is vital to the UK economy, it is clear we need a greater contribution from exports and investment. It is therefore concerning that business investment fell last quarter and the current account deficit remains unacceptably large, despite slight improvements in the trade balance,” he said.

“The next government must do more to back long-term business investment and support British exporters.”

Record current account deficit

The latest estimates of the UK’s overall trading position from the ONS showed it improved in the final quarter but was the worst on record for the year as a whole.

The current account deficit – made up of the trade deficit, plus losses on overseas ventures – narrowed as a percentage of the economy to 5.6% in the final three months of 2014 from 6.1% in the third quarter.

At £25.3bn it was still higher than a forecast of £21.5bn in a Reuters poll of economists.

For the whole year the gap was 5.5% of GDP, the largest annual deficit since records began in 1948.

Vicky Redwood at Capital Economics said the large current account deficit “casts something of a cloud over the figures”.

“Most people had hoped the deficit would narrow a lot more than this due to a shrinking of the investment income deficit, but in fact the latter remained pretty big,” said Redwood, chief UK economist at the thinktank.

“Nonetheless, the latest economic news suggest that growth has picked up again since the start of the year ... We still expect solid GDP growth this year of 3%.”