It never rains but it pours, and this must be how UK economic policymakers are feeling as they navigate a tempestuous economic landscape. The UK economy has faced severe challenges, beginning with the financial crisis of 2007-09, which was followed by an even more crippling downturn due to the pandemic. Now, the nation finds itself in the throes of an economic storm exacerbated by the erratic policies of an American president whose protectionist stance raises further uncertainty for trade-dependent economies like the UK's. This precarious situation is alarmingly uncomfortable for a nation that relies heavily on international trade.

At the heart of the UK's economic malaise is a profound collapse in productivity growth. The Resolution Foundation highlights this bleak reality in a paper titled Yanked Away by Simon Pittaway, revealing that labor productivity in the UK increased by a meager 5.9 percent between the first quarters of 2007 and 2024. In an even grimmer statistic, real wages rose only 2.2 percent during the same period. Context is crucial here; to illustrate just how stark this decline is, consider the previous 17 years from 1990 to 2007, when productivity soared by 38 percent and real wages increased by 42 percent. This stark shift suggests that the UK economy has effectively stagnated, with such a prolonged period of stasis being unparalleled since the 18th century.

The situation is not unique to the UK; other G7 nations have also experienced dismal economic performance since the financial crisis and the pandemic. According to the Resolution Foundation, by the end of 2024, GDP per hour worked in the US grew by 9.1 percent, while Japan managed just 3.4 percent. In contrast, several countries including the UK saw negative growth: Canada at minus 0.5 percent, the UK at minus 0.8 percent, Italy at minus 0.9 percent, and France trailing at minus 1.2 percent. Therefore, while the UK is grappling with its own challenges, it is somewhat reassured to know that it is not alone in this economic struggle.

The United States has managed to carve out a distinct advantage amidst this bleak landscape, leaving the rest of the G7 in a separate category of underperformance. This begs the question: why is the US outperforming its peers? Pittaway addresses this in his examination of What should the UK learn from Bidenomics?, a study published by the Mossavar-Rahmani Center at Harvard's Kennedy School, where he co-authored with Ed Balls.

Pittaway's analysis reveals that the US's recent gains in productivity are not solely rooted in advancements within the technology sector but extend much further. He notes that the UKs healthcare sector has significantly hampered productivity levels. This is one part of the larger picture; since 2019, productivity has actually decreased in sectors accounting for nearly two-thirds of UK output. In contrast, while US tech firms are indeed world leaders, the overall application of technology throughout the US economy has contributed even more substantially to rising productivity levels. A major factor in this disparity is the US's aggressive investment in research and development, as well as in software and information and communications technology, which has outpaced similar investments in the UK.

Lack of business dynamism has emerged as a critical problem for the UK economy. This raises an important question: to what extent can policies effectively stimulate business activity? This is a focal point of the Kennedy School's analysis of Bidenomics. The unprecedented scale of the US fiscal response to the Covid-19 pandemictotaling around 25 percent of GDP or approximately $5.2 trillionfar surpassed the stimulus measures taken by any other major economy. Additionally, the US labor market experienced rapid turnover, allowing workers to transition to better jobs with higher real wages in response to strong demand. Bidenomics has also been characterized by a more measured, sector-specific approach to intervention, contrasting sharply with the erratic policies of former President Trump.

It is crucial to acknowledge that the size of the US economy, its creditworthiness, and its leading position in the technology sector have made such fiscal interventions far more feasible than in the UK. The UK, in comparison, grapples with limited financial resources and a weaker foundation for fostering new economic activities.

Despite the ambitious economic strategies employed under Bidenomics, the political fallout from these measures has not been entirely favorable. Concerns about inflation have overshadowed much of the discussion regarding the economic approach taken during the pandemic. While the extent to which Bidenomics has contributed to rising inflation remains a contentious topic, the emergence of what some are calling 'Trumponomics'a set of policies perceived as incompetentmakes Bidenomics appear more favorable by comparison. This shift in the political landscape further complicates the economic environment for UK policymakers.

Ultimately, the continuous stagnation of the UK economy poses serious risks to the nations political and social stability. There are no indications that this trend will reverse without intervention. In light of this challenging domestic and international situation, it is imperative for the UK to consider adopting more proactive economic policies. Strengthening ties with European neighbors, for instance, could be a vital step forward. Additionally, the pursuit of strategically interventionist industrial policies might provide pathways toward revitalizing the economy. I intend to delve deeper into the exploration of such policies in my forthcoming columns.