Still everything to play for, says Bootle

After a difficult period over the next two years, there’s no reason why the UK economy cannot return to being a relative outperformer when compared to other major European countries, according to a leading economist.

Roger Bootle, economic adviser to Deloitte, said the UK should be able to compete with neighbouring European economies but warned that it would be futile to compare it to fast-growing developing economies that, even with a decent performance by its past standards, it is never going to beat over a prolonged period.

He also warned that much will depend on the policy decisions that are taken.

He said: “In terms of benchmarking the UK economy, the appropriate bellwethers are similarly sized and developed Western countries – most obviously France, Italy and Germany. I see no reason why the UK should lose ground against these economies.

“However, there are a number of ways in which policymakers could mess it up, particularly when it comes to sorting out the public finances.

“If things go wrong, it will not be an inevitable result of the financial difficulties of the past few years or because there is something fundamentally wrong with the UK economy. 

“Accordingly, there is still everything to play for. The UK bounced back after both the 1980s and 1990s recessions and went on to more than make up for the ground lost during these desperate periods. My money is on the UK staging a third national resurgence.”

In the first of his economic reviews in 2010, Mr Bootle said the UK had struggled to pull out of recession, even though most other major economies started growing again by the middle of 2009. In addition, the constraints on the strength of the global recovery over the next couple of years looks set to hit the country pretty hard.

He said: “The UK’s especially dire fiscal position means that fiscal policy will be a greater drag on growth than elsewhere. With firms having cut relatively few jobs during the recession, the UK’s recovery is likely to be particularly bad at generating jobs by international standards.

“However, it’s not all doom and gloom. For example, the UK’s net trade sector faces a huge boost from the drop in the pound. Nonetheless, I expect real GDP growth in the UK in 2010 of just one per cent, compared to growth of 1.5 per cent in the euro-zone, three per cent in the US and Japan and 3.5 per cent globally.”

Mr Bootle said once the economy is back to full capacity, the strength of economic growth will depend on the supply-side factors driving the economy’s productive potential. And while there are fears that the credit crunch has permanently damaged the UK’s potential output, he is sceptical about how big this effect could be.

In addition, he said there was no reason why the hole left by lower activity in some sectors could not be filled by other parts of the economy, where productivity might even be higher.

He added: “Net trade and business services are obvious areas with significant growth potential. Business services already account for twice as much of GDP as financial services and about four times as much as City-type wholesale financial services.

ENDS

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