There has been a lot of comment about the latest UK growth figures.
The headlines are undeniably good. Britain is now the fastest-growing economy in the G7 on recent quarterly measures, and since the General Election only the US has grown faster. That is particularly notable because the US is running a budget deficit of around 7.5% of GDP, while the UK is trying to reduce its deficit.
A lot of the reaction has been sceptical.
Even the FT has it’s doubts:
At the same time, new immigration figures show net migration falling sharply.
Again, the reaction has often been scepticism — though in this case because social media is telling many people something entirely different.
But the really interesting thing people seem to have missed is the interaction between these two stories.
Britain has a declining birth rate. I have long argued that the UK probably needs roughly 250,000 net migrants a year simply to stop the labour market — and by extension the economy — from slowing.
Net migration is now falling below that level.
In effect, Britain is moving towards very low population growth, perhaps even stagnation.
And yet:
the economy is still growing.
That matters because it changes the story entirely.
If migration is lower but GDP is still rising, then GDP per capita is growing more quickly than many people realise.
And GDP per capita is what actually matters for living standards.
People do not experience “the economy” in aggregate. They experience:
- wages,
- productivity,
- disposable income,
- the quality of public services.
In other words:
how much economy there is per person.
By that measure, Britain may quietly be doing rather better than people think.
Oddly, this has barely registered because it is a complicated story, and complicated stories do not travel well on social media.
“Everything is collapsing” is easier to sell.
But these figures raise three possibilities.
1. The economy would have grown even faster with higher migration
This is still plausible. Lower migration may simply mean slower growth than we otherwise would have had.
2. You can reduce migration in the short term, but over time growth suffers
This is probably my biggest concern. Labour shortages, ageing demographics and weaker workforce growth may only show up over several years.
Or — and this is the big one —
3. Britain simply does not need as much migration as people like me assumed
I am open-minded enough to admit this might be true.
Personally, I sit somewhere between two and three.
I still worry that migration may now be too low and that over time it could become a drag on growth.
But it is increasingly difficult to ignore what the numbers seem to be saying.
The government has effectively bet the ranch on productivity.
Restrict the supply of cheap labour and force businesses to invest, innovate and improve productivity instead.
That strategy carries risks. Hospitality, social care and agriculture are already under pressure, and Rachel Reeves risks doing to parts of hospitality what Thatcher did to coal mining if adjustment happens too quickly.
But — so far at least —
the numbers suggest the plan might actually be working.
Britain has lower immigration.
Britain still has growth.
And if that continues, it could mean something rather important:
the UK economy may finally be learning to grow without simply importing more people.