It was announced this morning that the UK economy grew just +0.5% in 2011, a downward revision from +0.7% previously announced. As the chart below from Citi illustrates, the UK economy has stalled. UK real GDP is 4.1% below its pre recession peak, which makes this ‘recovery’ worse than the Great Depression.
The UK’s experience of the past few years is also considerably worse than Japan’s experience in the aftermath of its bubble. Looking back, Japan’s decade doesn’t look all that ‘lost’ in comparison – Japan’s real GDP in 1991 was +2.6%, -0.1% in 1993, +0.9% in 1994 and +2.5% in 1995, and Japan’s average annual real growth rate through the 1990s was +1.2%. It’s also worth pointing out that for all the talk of austerity in the UK, the reality is that government expenditure actually increased by 0.1% in real terms last year. Austerity hasn’t really started yet.
Sterling is the fourth worst performing currency in the world so far today, down 0.5% versus the euro and down 0.3% versus the US dollar. A continuation of abysmal UK growth should result in sterling appearing more regularly towards the bottom end of the currency tables than the top.