The UK’s growth potential continues to be hampered by poor performance in terms of trade, quality of transport infrastructure and education, compared to its Western European peers, such as the Netherlands, according to a new report. Transport infrastructure in particular is a hindrance, with the UK ranked 18th overall in this category, behind the US, France and Germany, says KPMG’s 2019 edition of the Growth Promise Indicators (GPI) index.
The GPI also points out that the UK’s macroeconomic stability is lagging in comparison to other European countries including Denmark and Ireland, indicating that the scope for the government to increase spending substantially may be limited. Conversely, the UK is well positioned to capitalise on technological innovation, ranking among the global leaders in technology readiness and business rights.
Globally, Switzerland leads the way at the top of the GPI, followed by the Netherlands and Singapore. Elsewhere in the top 10, Luxembourg and Finland have leapfrogged Norway while this year’s ranking has also seen Mauritius, the Bahamas and South Korea make significant ground.
Yael Selfin, Chief Economist at KPMG in the UK and author of the report, says: “Despite Brexit and on-going political uncertainty, the UK needs to encourage a dialogue between government and business to improve its long-term productivity. Failing to make this a key priority will leave the economy struggling to reach its full growth potential. If the next UK prime minister hopes to ramp up spending, he needs to find a balance between long-term macroeconomic stability and sustainable growth, ensuring every penny is well spent.
“The index shows that globally, the top performing countries that have been able to lay the foundations for solid growth are the ones to follow. Asia has one in the top five GPI ‘league table’, with Singapore in third place; while Europe has the remainder. Smaller nations, such as South Korea and the UAE, are also moving quickly up the rankings, while developing economies are often making progress faster than their developed counterparts.”
Strong institutions help Europe lead global rankings
The report highlights the importance of strong institutions and their role in promoting sustainable economic growth. The UK generally performs strongly in this area and ranks 12th overall, with Finland top.
Yael Selfin, Chief Economist at KPMG in the UK and author of the report, adds: “One aspect where the UK could improve its ranking in this area is transparency of policymaking, where there is a sense across business that the UK is lacking a long term vision for the economy, which is hindering business investment. This is where a robust regional strategy supported by a strong devolution agenda may help.”
Many countries still lag behind when it comes to strong institutions, and as the report makes clear, better performance in this area can trigger much wider improvements that lay the groundwork for future growth, at a relatively low cost.