UK economy: where will it be in a few years?

The UK economy faces an incredible challenge not seen during any other economic recession since early 70s. The path of the economy since 2008 has been sluggish marred with confusing pattern of growing working hours, more or less stable employment, and yet low productivity and therefore, low level of output. Our analysis of key productivity indicators for the UK economy during the past four recessions using ONS data shows that we live in very unusual times. Optimistic growth during 2013 has been largely fueled by the monetary policy: quantitative easing, Funding for Lending, and Help to Buy schemes. Statistics show that UK trade balance has not improved despite sterling depreciation, whereas business investment is low. This means that the sector and business restructuring is happening very slowly, too slow compared to what was happening in the past.

UK’s competitiveness can only flourish if it innovates and moves towards higher value added services sectors, including services within advanced manufacturing. Such change is complex as at its core it requires educated workforce more than anything else. Note how exports of services only once grew faster than exports of goods - after the recession in 1990 when the UK had many advantages to offer higher quality services to the rest of the world. This trend should have continued after 2008, but it has not - many developing countries have been producing armies of highly qualified young people. I believe that UK's biggest challenge is that of inspiring new generations to study sciences, including computer sciences, (or so called STEM subjects) en-mass, so that innovation becomes the heart of the culture.