How UK has economy fared since crisis

Britain’s economy is finally off the interest rate life support brought in nearly ten years ago after the financial crisis struck.

But experts warn that “deep scars” left by the recession has made the UK vulnerable to new shocks.

When the Bank of England pushed the button on its milestone interest rate rise last November, it marked the first hike since July 2007, when markets were blissfully unaware of the financial crisis brewing.

Now following the second increase to 0.75 per cent this August, rates are above the emergency low of 0.5 per cent where they had languished since the bank’s dramatic cut in March 2009 to contain the fall-out from the crisis.

But does this mean the economy is back to normal?

Most economists and even the Bank governor Mark Carney himself have been quick to stress that, while fairly resilient, Britain’s economy is now merely trundling along at a “new, lower speed limit”.

Official data showing unemployment at a 43-year low masks the long-lasting effects that the crisis and subsequent recession has had on the economy.

“It’s clear that ten years on, the recession has left deep scars on the labour market and average family real incomes,” according to Chris Williamson, chief business economist at HIS Markit. “The long-term damage is evident in the sheer scale at which the economy has failed to catch up for lost growth,” he said.

The recession that followed the credit crunch and financial crisis saw output plummet by more than 6 per cent as it began shrinking in the second quarter of 2008 and continued to contract until the third quarter of 2009.

It took five years for the economy to get back to the size it was before the recession and in the aftermath unemployment reached its highest rate since 1995 by the end of 2011.

The Office for National Statistics calculated in April that the economy is now around 11 per cent bigger than it was before the recession. But it is far behind where it would have been if the crisis and recession had not happened.