Looking at the chart below will tell you the the UK’s recovery since 2008 has been much slower than even the recovery after the Great Depression.

So what went wrong. Well according to economist (and external member of the Bank of England’s Monetary Policy Committee) Adam Posen when looking at the US recovery compared to the UK

Cumulatively, the UK government tightened fiscal policy by 3% more than the US government did – taking local governments and automatic stabilizers into account – and this had a material impact on consumption. This was particularly the case because a large chunk of the fiscal consolidation in 2010 and in 2011 took the form of a VAT increase, which has a high multiplier for households. The fact that British real incomes were hit harder than American households’ incomes by energy price increases could be ascribed in large part to the past depreciation of Sterling, which also hit real incomes directly. All combined, these factors significantly dampened consumption growth in the UK, with knock on effects on investment and stockbuilding.

Source: The Economist

 

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