“Why should I want to make anything up? Life’s bad enough as it is without wanting to invent any more of it.” (Marvin, The Hitchhiker’s Guide to the Galaxy – Douglas Adams)

The UK’s economy continues to get plenty of stick. This is not new: for much of the last century, commentators have fetishised a future of irrelevance and decrepitude for this soggy little island. We Brits secretly seem to enjoy rolling around in the prospect and others certainly do.

For sure, the fifteen or so years of stagnation in labour productivity, and therefore household income growth following the Great Financial Crisis, really do stand out in our history. That is even the case after further meaty recent revisions to the statistics.¹ Some famous academics argue there is nothing like it in our post-industrial revolution history.² However, while the doomer narrative remains stuck in a rut, the economy may have already moved on. For this article, we will take a look at some of the causes of the becalming of the economy as well as why things might have already changed.

UK – early millennium funk

The proposed causes for this funk are many and various, akin to an Agatha Christie where lots of domestic factors and actors have a stab. There is also undeniably a global element to the story.

Britain’s primacy in financial services, a central reason for the country’s success in hauling the world out of millennia of stagnation in the 18th and 19th centuries,³ was an important Achilles heel in the global financial crisis (GFC) of 2007-09. The UK experienced this financial system heart attack far worse than many others and paid a heavier price in the aftermath. The fact that the UK’s financial sector had managed to swerve the epicentre of many of the world’s worst banking crises in the century before perhaps worsened the hangover.

The rolling turmoil of the ensuing euro crisis weighed further. As we would rediscover with Brexit – proximity still matters in economics. Persistent worries about the solvency of various heavily indebted European states, with Greece singled out, provided further cover for the forced diet inflicted on the British state. Hysterical focus on government debt levels, given academic cover by the now infamous Reinhart and Rogoff paper⁴ on the subject, restrained many states from stepping into the GFC-spurred slump in private sector confidence.

Meanwhile, Brexit is certainly touted by at least one half of the country as being unhelpful. However, it comes too late to explain all the flatlining in productivity growth. It has so far probably resulted in a little less growth and a bit more inflation relative to our major developed world peers, much as calmer perspectives pointed out on the day of the vote. The more extreme claims on either side of the debate mostly reflect ideology rather than facts on the ground. Efforts to construct doppleganger British economies, attempting to explain the apparently lost output, can be safely ignored.

Throughout this period, much as with the 1950s and 60s, it is the pace of technological change that can answer for a lot. This time it was its apparent absence that provides vital context. The last productivity surge surrounded the Information and Communications Technology cluster arriving in the early 90s. Between 1995 and 2005, many countries realised huge efficiency gains as these technologies transformed the world around us, essentially making it much smaller and more navigable.

The period since that surge in growth, living standards and interconnectivity, has been remarkable for the lack of productivity growth, in both the UK and wider world. There have been wondrous new technologies for sure. However, they seem to be only just beginning to change the trend in productivity growth. Perhaps this is simply the lull between two bubbles as we argue elsewhere.

The investment shortfall…

This cocktail of factors has had some influence on notably subdued trends in investment in the UK. The factor where the incumbent Labour government could still enjoy the greatest agency surrounds the provision of stable and predictable background conditions (from legal framework to access to workers/markets) emphasised by the OECD literature. There is intuitive sense here. Businesses have plenty to deal with in their daily battle with ever-shifting consumer preferences, competitors and more besides. Most will want as much of the rest of the unknowable future fixed to whatever extent feasible.

This is something the UK has appeared to struggle with for the last couple of decades, having more or less invented it in the long run up to the First Industrial Revolution. Some recent Nobel prize winners are among those who see causation here⁵ – strong, stable and predictable institutions appear to be a necessary (if not quite sufficient) precursor to sustained economic growth.

The fact that the last 18 or so years have seen the launch of almost as many industrial strategies hints at a hyperactivity hindering policy efficacy. Some will argue that in an ever-changing world, the industry strategy needs to follow suit to stay relevant. However, the reality is that the bulk of innovation and adaptation is likely better sited closer to the economic action, primarily within the private sector.

Sticking to any growth strategy may require lower turnover in cabinet and other government leadership positions. Changes of management always bring new ideas (otherwise everyone wonders why the change). However, as above, this risks misunderstanding where the state’s edge actually lies in the innovation and investment ecosystem.

The positives…

The UK is ranked 6th in the Global Innovation Index.⁶ Our universities and some emerging (linked) regional clusters of excellence in various industries, from life sciences to parts of the AI ecosystem, represent something substantial to build on.

Meanwhile, the economy has continued to surprise a determinedly gloomy consensus so far this year. Consumers have proved more resilient and businesses more adaptable. The global technological context is as helpful as it’s been for some time, particularly to the parts of the corporate sector that have lagged on investment as is true for much of the UK. More broadly, the public debt is mostly a red herring, as explored in other articles available on our website, while a less visible government than we’ve recently become used to is far from the end of days. There are certainly problems to solve, the chasm in opportunity, living standards and wealth between southeast and northeast, at the top of the list. Shocks will come and go unpredictably. However, the reminder here is that there is much to feel proud of in the UK economy, even if the talking heads may take a while to cotton on as usual.

^{1 Giles, Chris (March 4th 2026) – Financial Times Opinion – To stop UK’s debt fatalism, look past charts of doom.
2 Crafts, Nicholas and Mills, Terence C (2020) Is the UK productivity slowdown unprecedented? National Institute Economic Review, 251. R47-R53. ISSN 0027-9501
3 Cain, P.J & Hopkins, A.G – (2001) – British Imperialism 1688 – 2000 – Routledge (2nd Edition)
4 https://blogs.lse.ac.uk/politicsandpolicy/public-debt-gdp-growth-and-austerity-why-reinhart-and-rogoff-are-wrong/
5 Acemoglu, D, Johnson, S & Robinson, J (May 2004) – Institutions as the fundamental cause of long run growth – NBER working paper 10481
6 https://www.wipo.int/gii-ranking/en/united-kingdom}

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References

Source: https://www.brooksmacdonald.com/insights/uk-don-t-believe-everything-you-read