Between 1955 and 2008, GDP per person in the UK grew at an overall rate of 2.3% a year. Periodic booms and the inevitable following recessions produced deviations, but before 2008, growth always returned to this steady trend. That changed in the global financial crisis. In the following 18 months, GDP per person fell by 11.4%. In contrast to all previous recessions, growth never returned to the previous trend line. Between 2010 and 2019, GDP per person returned to growth at the lower rate of 1.4% a year. The shock of the Covid epidemic resulted in large parts of the economy being shut down, since when there has been a sputtering recovery.
But the bottom line is that GDP per person is now £16,500 – 29% – lower than it would have been if the 1955-2008 trend had continued.
GDP per person for the UK, in real terms (reference year 2023). Quarterly data from the ONS, annualised, 13/11/2025 release.
GDP measures the total value of goods and services produced by the economy, that value to be shared between wages and returns to owners of capital. So GDP per capita is a good measure of how much of that value is available for an individual citizen, through the wages they earn, the return on their investments, and the public services that are available to them. Of course, not everyone gets an equal share. There is considerable inequality in incomes, though in recent years this has been relatively stable. Wealth represents claims on future GDP, and here the inequality is considerably greater than for incomes, and has been substantially increasing.
Total GDP is important as a measure of the relative scale of the whole national economy – and in particular, it’s what determines how sustainable is the public debt. In recent years, GDP has been increasing faster than GDP per person, because there has been substantial net immigration. The total pie is bigger, but it is being shared out between more people. So while the Chancellor of the Exchequer might want to focus on total GDP growth, as this is what influences the price that the bond market demands to lend the government money, it’s GDP per person that is more of a determinant of whether individual citizens feel their prosperity is growing.
Productivity – defined as GDP per hour of work – is perhaps a more fundamental measure of the productive capacity of the economy. Even if productivity is steadily increasing, GDP per person can show periods of faster growth, and periods of slower growth – booms and recessions – as the productive capacity is more or less effectively used. I’ve written extensively about productivity in the past (see my post “Ten years of banging on about productivity” for a summary) ), but here I focus on GDP per person, not least because there are some recent technical problems with the UK’s productivity data.
Sam Freedman has stressed the political importance of the financial crisis and its enduring effects in his post “The Financial Crisis Theory of Everything”. Here I want to focus more on the economics.
It’s worth stressing two principles:
1. Causality and the arrow of time: the outcome we see is always a function of what has happened in the past, not what’s going to happen in the future. But you can always make a bad situation worse. This should be obvious, but one still often sees comments suggesting that Brexit is the cause of our current economic woes. Brexit probably has made our situation worse, but since the referendum was in 2016, and the actual event was in 2020, it can’t have been the cause of a slowdown which began in 2008.
2. Economies are complex beasts that respond slowly to shocks and changes. It takes time to feel the benefits of new investments, and the effects of underinvesting in the future take time to work through. As householders know, one can get away with neglecting maintenance for a while, and one temporarily feels more prosperous, until the roof starts to leak and the bill for fixing it arrives.
This said, there are all too many plausible culprits for our post-GFC growth disaster. In the period before the crisis, the UK had suffered from a period of low investment by both the private and the public sectors. In the private sector, a new focus on “shareholder value” arguably led to the embedding of more short-term attitudes. There was a very large decline in the research and development intensity of the UK economy in the 1990’s, due to a policy shift away from applied research in the government sector, reductions in R&D intensity in privatised industries, and a turn away from corporate R&D in struggling industrial conglomerates like ICI and GEC. The high point of North Sea oil and gas in the late 1990’s perhaps gave false comfort in the underlying strength of the UK economy, and a resulting over-valued currency put great stress on exporting sectors, leading to “Dutch disease”, with the 2000’s financial services bubble further distorting the shape of the economy.
The response to the crisis made matters worse. A period of austerity in which capital spending, rather than current spending, received the brunt of the cuts made the underinvestment problem worse, storing up trouble for the future. Macroeconomists stress the fact that running the economy for an extended period with reduced demand itself reduces productivity growth, as the private sector cuts investment in response to anticipated weak future growth. The other side of the Coalition Government’s policy of “fiscal conservatism and monetary activism” was the use of quantitative easing to suppress interest rates, possibly leading to capital misallocation, and certainly producing substantial increases in asset prices with the effect of further increasing wealth inequality.
Since 2015, a weakened economy has been subject to further shocks, part external, part self-inflicted – Brexit, the Covid pandemic, an energy price shock. The uncertainty following the Brexit referendum led to lowered investment, while the final outcome has produced trade barriers and regulatory frictions that have both discouraged inward investment and hindered exporting industries. Covid led to global disruptions of supply chains, and perhaps less tangible but lasting effects on our citizens. The invasion of Ukraine led to a spike in natural gas prices, to which the UK was particularly exposed due to the structure of its energy economy, leading to further contraction by energy consuming industries like chemicals. This was all taking place during a period of chaotic economic policy making.
GDP per person for the UK, in real terms (reference year 2023). Quarterly data from the ONS, annualised, 13/11/2025 release.
Where this has left us is summarised in this graph, showing the same GDP per person data but focusing on the last 25 years. Since the pandemic’s disruption, GDP per capita has started rising again, but it has not yet recovered to the pre-pandemic trend line, let alone begun any sort of recovery to the pre-GFC trend.
Where next? The current government is often accused of having no plan for growth, but I think this is somewhat unfair – there is one, even if it isn’t being very effectively communicated. Current government economic policy, I believe, owes much to a group of LSE economists specialising in productivity, and working with the Resolution Foundation. John van Reenen and Anna Valero have been key figures here, both spending time as senior advisors to the Chancellor of the Exchequer. But I’m going to call the doctrine Torstenism, after Torsten Bell, formerly Director of Resolution Foundation, and currently an MP and Treasury Minister, since he has given the most coherent account of the strategy in a post-budget BlueSky thread.
This strategy for productivity growth combines a revision of fiscal rules to permit more government capital investment, continuation of a generous regime of capital allowances and R&D tax credits to encourage private sector investment in tangible and intangible capital, an explicit industrial strategy, measures to direct savings into the UK economy, and a commitment to streamline planning policy to speed up new infrastructure and housing.
Will this be enough? In my opinion it’s all sensible stuff – but perhaps it is the last throw of the dice for incremental change within our current economic model. If it doesn’t yield tangible results, what follows may be more radical change – and not necessarily for the better.