Real national output does not rise
or fall at a uniform rate. All countries experience fluctuations in their
rate of economic growth - some more volatile than others! The British economy experiences regular trade or business
cycles. Annual and quarterly movements in real output are tracked to measure
the cyclical movement of the economy.
GDP is rising quickly the economy is said to be experiencing economic growth
or recovery. When real output falls or when the growth of output is below its
long run trend rate - then an economic recession exists. One full economic
cycle normally last between 6-10 years - but this is by no means guaranteed.
The chart above shows the annual change in UK real national output since
1970. There have only been five full years of "technical recessionary
conditions" during this period. For most of the last fifty years the
economy has grown in size each year.
the last recession came to an end in 1992 (in fact over the course of the
year there was barely any noticeable growth to speak of!). But since then the
economy has enjoyed one of the longest sustained expansions in output (and
employment) in the post war period. Can this continue? Can the British
economy manage at least a decade without experiencing another recession?
long-run average growth of real output - known as trend GDP - estimated to be
2.5% for the UK over the last thirty years.
Trend growth is determined by the supply-side performance of the
economy - in particular the annual increase (improvement) in the productivity
of labour and capital. And, the quantity and quality of fixed capital
investment which adds to the productive capacity of the economy.
below shows the level of real national output for the British economy over
recent decades. The trend growth can be taken as the long run average growth
rate over time
Growth Of Output By Sector
measures the value of output produced by the economy as a whole. We can also
track the growth of production in specific sectors such as manufacturing
industry and service industries. The chart below shows the annual growth of
real output for four separate sectors.
last six years, the service sector has grown more quickly than manufacturing
or construction. Transport and Communication industries have enjoyed rapid
growth as has Business Services. In contrast the construction industry has
been in technical recession since the 4th quarter of 1998 and manufacturing
output also dipped in the 1st quarter of 1999.
It is often
said that the UK has a two-tier economy with the industrial sector achieving
slow growth of output whereas service industries have experienced above trend
growth of demand and production