Reasons for stronger growth in the United Kingdom than in France from mid-2013 to mid-2016

The outcome of the 23 June 2016 “Brexit” referendum created considerable uncertainty about growth prospects for the United Kingdom and the Eurozone, including France. Over the three years that preceded it, between mid-2013 and mid-2016, gross domestic product (GDP) grew significantly more in the UK (+7.7%) than in France (+2.8%), or an average difference of 0.4 points per quarter. These differences were much less pronounced before this.

In terms of accounting, this difference is due mainly to household expenditure and, to a lesser extent, to public expenditure, both of which were more dynamic in the United Kingdom over the period.

By applying an econometric analysis, the underlying mechanisms can be determined. The savings ratio of British households is very sensitive to the unemployment rate; their consumption therefore reacted very strongly to a policy that favoured employment rather than wages. It is likely that this factor contributed +1.9 points to the growth differential of 4.9 points.

The monetary and financial context probably accounts for 2.0 further percentage points difference. Both countries had an accommodating monetary policy. However, in the United Kingdom, this led to a substantial rise in asset prices. This then had an impact on household consumption and investment through powerful “wealth effects”, which were unparalleled in France.

Finally, budgetary policy probably contributed a further 2.2 points, at the price of a public deficit that was much greater than that in France: in 2015, the “structural” deficit was estimated at 5.8% of GDP, against 2.5% in France.

In H1 2016, even before the referendum, these factors seemed to be fading, suggesting a convergence in the growth of the two countries. By increasing uncertainty among investors, the prospect of “Brexit” was probably able to speed up this convergence, or even reverse the growth differential.