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Budget 2015: UK could overtake Germany by 2030

18th March 2015 17:08

Rebecca Jones from interactive investor

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Chancellor George Osborne claimed that the UK has the potential to replace Germany as the largest economy in Europe by 2030 as he celebrated recent economic growth.

In his budget speech on Wednesday the Chancellor cited recent positive economic data as proof that the UK was on a clear road to long-term economic recovery.

According to the Office for Budget Responsibility (OBR), UK GDP grew by 2.6% in 2014, its strongest level in over six years and faster than any other major advanced economy in the world last year.

The OBR said GDP will grow by 2.5% this year, up from 2.4% predicted in December, will remain at 2.3% between 2016 and 2018, finally rising again to 2.4% in 2019.

"Hopelessly unrealistic"

Osborne also cited a record low unemployment figure of 5.3% combined with a rise in GDP per capita, or per person, as further evidence of the UK's economic strength.

However, the Chancellor did not allude to the more disappointing wage data released on Wednesday. This showed that UK wage growth slipped from 2.1% in December to 1.8% in January, which sent sterling tumbling to fresh lows against the US dollar.

Speaking in the House of Commons, Osborne says: "Within just 15 years we have the potential to overtake Germany and have the largest economy in Europe. Five years ago, that would have seemed hopelessly unrealistic; economic rescue was the limit of our horizons.

"Today, our goal is for Britain to become the most prosperous of any major economy in the world in the coming generation, with that prosperity widely shared across our country."

The chancellor also pointed to the UK trade deficit, which is at its lowest level in 15 years, outlining further support for UK companies exporting to China. This follows the government's recent decision to help found the new Asian Infrastructure Investment Bank, a move that has attracted criticism from the US.

Commenting on the Chancellor's bullish sentiments for the UK economy, Anna Stupnytska, global economist at Fidelity Worldwide Investment, says: "Perhaps predictably, the Chancellor's rhetoric sent a different message to today's disappointing labour market data, with much focus on rising employment figures and no mention of subdued wage growth.

"A message on Britain's potential to overtake Germany to become the largest economy in Europe over the next few years also seemed highly political, perhaps unsurprisingly, given political focus on Europe and the potential for an in-out referendum. But how much of UK's growth advantage versus Germany can come from productivity rather than labour force growth was not clarified," she says.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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