Business

UK v US : Which has the firmer base for recovery?

US shopper
Image caption Household spending in the US accounts for 70% of its economy - even higher than in the UK

UK and US businesses adopted very different strategies when confronted with the worst downturn since the 1930s.

The jury is still out as to which will lay the foundation for the more durable recovery.

Although the US experienced a less severe recession - its economy contracted by about 4% compared to 6.5% in the UK - its firms laid off far more workers.

The number of people in work fell by more than 6% in the US compared with a much more modest 2.3% decline in the UK.

Cutting more workers has lifted US productivity and boosted profits. Eventually, it is hoped that this will lead to a self-sustaining recovery as firms feel encouraged to invest more, and eventually, start hiring again.

Stalled productivity

But with 9% of the workforce without a job, firms aren't sure that consumer demand will be strong enough to warrant lots of new investment.

After all, household spending accounts for about 70% of all spending in the US - even more than here - and international trade may not be able to fill the gap.

In the UK, firms have been more reluctant to lay off workers, perhaps fearing it will be hard to find the employees they need when the recovery really gets going.

This has meant that UK productivity has stalled, which, if maintained over time, could lead to UK firms becoming less competitive at home and abroad and ultimately less profitable. Eventually businesses would be likely to respond with further layoffs, undermining demand at home.

But the fact that more people are still in work should support demand in the meantime and may give the UK a better chance of sustaining the recovery. The weak pound should also support our competitiveness in the near term and boost our efforts to export more.

Time will tell which was the better approach.

The opinions expressed are those of the authors and are not held by the BBC unless specifically stated.