For most of my life the UK has been slipping down the rankings of countries rated by size of GDP.
This does not mean that British people have been becoming worse off. Quite the opposite. But the rate of improvement has been slower than in many other countries. And the result is that the country has become less significant in economic terms.
Mind you, you can readily over-do the declinism. Many people do not realise that on the market exchange rate measure, the UK is still the world’s seventh largest economy, larger than India and Russia. On the PPP measure it is eighth.
Until recently, the widespread view was that, although this ranking might be surprisingly high, it was bound to slip inexorably over the next couple of decades.
In fact, the opposite may be true. The UK is growing at about the fastest rate of any economy in the G7. Later this year the UK will probably overtake France and Brazil, and in PPP terms it could soon overtake Russia.
This would put it in fifth according to market exchange rates and sixth on a PPP basis. Now, there is an event in September which could radically change all this.
If Scotland votes for independence, the UK will immediately lose about 10pc of GDP and, accordingly, slip down the rankings quite a way. None of this would imply that people in the rest of the UK would be any worse off – at least not directly. Indeed, they may even be better off. But it would reduce the UK’s weight in the world.
That aside, in the decades ahead the UK’s ranking will be dominated, not just by matters of relative economic success, but also by demographics. Because of immigration and a relatively high birth rate, the UK population is set to expand materially.
Now before the serried ranks of “Disgusteds from Tunbridge Wells” inundate me with abuse, let me make it clear that I am not saying that this is necessarily good. But what I am saying is that, if it happens, it will have major consequences that we need to take cognisance of.
Other things equal, it would increase the size of the UK’s GDP. Again this does not necessarily imply a rise in per capita income relative to what would have happened anyway. Income could be increased, decreased or just left the same.
But it does imply a larger economy. Many reputable judges believe that within a few decades the UK will have overtaken Germany as the country with the largest population in Europe. If we manage our affairs well and the UK’s income per head at least stays level with Germany’s, then this would imply that we would have the largest economy in Europe.
Where we would rank in the world, of course, would depend upon how other countries fared.
I know that Roger Bootle is a sensible, sober economist and a deep thinker. Therefore I will not accuse him of flag waving or wishful thinking. Instead, I will credit him with being a cheerful optimist on this topic. However, I regard his view as a best case scenario for a number of reasons.
Governance is Everything
Roger Bootle mentions Scotland’s independence referendum vote which will occur on 18th September 2014. I think it would be unfortunate if Scotland left the United Kingdom and many of its business leaders and other influential Scots have expressed their hopes that this will not occur. However, there is a big emotional factor in many elections, not least this one.
The UK’s next general election will take place on 7th May 2015. Even if Scotland does vote to leave the UK, the actual separation would not occur before the UK general election, which the present government could easily lose, not least because of UKIP which is likely to siphon more votes away from the current government than Labour. I credit the Conservative Party with the economic recovery that we are now experiencing and think it would be a huge setback if the current Labour Party was elected (see Boris Johnson’s column below). This would be far worse than Tony Blair’s Labour government and probably even worse than Gordon Brown’s administration under which the UK’s government debt was allowed to spiral out of control.
So there are plenty of uncertainties ahead for the UK, from Scotland’s independence vote, the next general election and also David Cameron’s proposed referendum on Britain’s membership of the European Union in 2017. All three will inevitably affect the UK’s future economic growth.Back to top