Summary

• The UK is now around 40% poorer per person than the US, having been on course for near economic parity as recently as 2007. If it were a US state, the UK would be the poorest in the union, ranked below Mississippi.


• Britain has not always been outpaced by the US. Between 1955 and 2008, the UK experienced an annual trend rate of real growth per person of 2.3%, slightly faster than the US at 2.1%.


• After the Global Financial Crisis, the US suffered a drop in the level of economic activity but then essentially returned to trend growth. In contrast, the UK experienced both a sharp drop in the level of economic activity and a decline in the subsequent rate of economic growth.


• Austerity cannot explain the UK’s underperformance: the US pursued a similar policy over the same period.


• The real cause was post-2009 banking regulation, which required banks to substitute perceived low-risk lending to governments for lending to business.


• The effects of regulation fell disproportionately on the UK’s bank dependent economy, and undermined lending to small and medium-sized businesses, inhibiting their ability to grow. The US was less affected due to its greater reliance on non-bank credit and the abundance of small banks subject to fewer regulatory requirements.


• Whereas US lending to non-financial businesses recovered by mid-2013, in the UK bank lending remains 15% below its early 2008 level.