National Minimum Wage

National Minimum Wage
6
Although not directly linked to any particular low-paying sector, investment in capital goods,
infrastructure and housing will have implications for the long-term health of the UK economy.
1.15 The nature of the recession and subsequent recovery has been very different from that
experienced in the 1980s and 1990s. As noted above, the 2008-2009 recession was of much
greater magnitude. Table 1.3 shows that consumer spending fell sharply, investment
collapsed, and inventories were run down but imports weakened more than exports and
government spending barely changed. In contrast the 1980s and 1990s recessions were
mainly due to falls in investment and a rundown in stocks, although reductions in consumer
spending played some part in the 1990s recession. The fall in business investment and the
impact on trade were similar across all three recessions.
1.16 In contrast to the previous recoveries, consumer spending has been much weaker this time
and the latest data suggest that it is still weak. Real wage growth and real disposable income
have fallen as average earnings increases and pay settlements have remained subdued.
Inflation has remained high, driven by price rises in necessities such as food and energy, and
taxes have increased. But exports have performed better than in the past and inventories are
being built up rather than run down as in previous recessions.
Table 1.3: Components of Gross Domestic Product Growth in Recession and Recovery, UK,
1980-2011
Per cent Average growth per quarter Growth on previous quarter
Household
consumption
Government
consumption
1980Q1-
1981Q1
Recession Recovery Latest
1990Q3-
1991Q3
2008Q2-
2009Q2
1981Q2-
1983Q2
1991Q4-
1993Q4
2009Q3-
2011Q3
2010 2011
Q4 Q1 Q2 Q3
0.0 -0.4 -1.2 0.5 0.5 0.1 -0.3 -0.4 -0.4 0.0
0.2 0.8 -0.1 0.4 0.0 0.4 -0.1 0.5 0.4 0.2
Investment -3.5 -2.0 -4.2 1.1 0.3 0.3 0.0 -2.4 -0.6 1.3
Business
investment
Dwellings
investment
Change in
inventories
Domestic
demand
-2.4 -2.8 -2.6 0.5 -0.3 0.3 1.4 -6.3 9.5 0.3
-7.1 -2.9 -6.4 1.9 1.9 1.6 -2.9 -4.3 9.1 1.8
-2.7 -2.9 -1.1 -1.2 -0.9 0.1 0.4 0.0 0.4 1.6
-1.2 -0.9 -1.8 0.9 0.5 0.3 -1.4 -0.7 0.1 0.8
Exports -1.3 0.3 -2.2 0.5 1.1 1.4 4.1 1.3 -1.5 -0.8
Imports -3.4 -1.1 -3.1 2.3 1.3 1.2 1.2 -1.5 -0.6 0.5
Real GDP -1.0 -0.5 -1.5 0.6 0.4 0.4 -0.5 0.4 0.0 0.6
Source: LPC estimates based on ONS data, household final consumption expenditure (ABJR), general government final consumption expenditure
(NMRY), total gross fixed capital formation (NPQT), business investment (NPEL), investment in dwellings (DFEG), change in inventories (CAFU),
total domestic expenditure (YBIM), total exports (IKBK), total imports (IKBL) and GDP (ABMI), chain volume measures, quarterly, seasonally
adjusted, UK, Q4 1979-Q3 2011.