10 Years On: How has the 2008 Financial Crash Impacted the UK Economy?

It has been 10 years since the collapse of American investment bank Lehman Brothers and the ensuing financial chaos this unleashed upon the world. Over the last eight of these years the UK has continued to experience the return of economic growth and unemployment levels are now at a 43-year low. However not all scars heal so easily and even today the UK is still dealing with some of the fallout from the worst recession since the great depression.

Let’s take a look at how the main aspects of the economy have fared a decade on from the beginning of the ‘great recession’.

Wage Growth: Stagnant Incomes for a Decade

One of the deepest scars of the 2008 financial crash and something that it is still being felt by the majority of workers in the UK today is the impact on wages.

When adjusted for inflation, real average wages today are no higher than they were in 2005.

With investment drying up in the wake of the crash many businesses scrambled to cut costs, with workers being hit particularly hard as firms justified below-inflation pay rises as a way of limiting job losses.

The Bank of England (BoE) has repeatedly suggested that wage growth will begin to pick up as the unemployment rate falls.


However at the time of writing domestic unemployment rests at a 43-year low, while average earnings continue to hover around 2.5%, which is well below the average of 4% annual wage growth before the crash.

The Housing Market: Fewer Houses, Higher Prices

Another of the most publicised consequences of the crash was the massive hit sustained by the global housing market.

In the UK this has seen house building and buying activity remain significantly below the levels seen in the lead up to the financial crash, with current data showing that mortgage approvals remain 40% lower than before the crash.

House-building in the UK is also yet to return to pre-crisis levels, with many UK construction firms having been declared insolvent in the years following the crash, leading to a reduced stock of new housing throughout the UK.

This in turn has seen house prices bounce back from their initial fall to climb 17% above the peak levels in 2008, although this has led to many potential buyers being priced out of the market.


Interest Rates: a Decade of ‘Free Money’

In the immediate aftermath of the 2008 Financial Crisis the Bank of England, in a co-ordinated effort with other major central banks, slashed interest rates to zero to help stimulate growth.

These rock-bottom interest rates and the pumping of billions of Pounds into the economy through quantitative easing helped to shore up UK businesses throughout the worst years of the recession.

However, a decade on from the financial crisis and the BoE is only just now beginning to tighten monetary policy again, raising interest rates for only the second time since the crash back in August.

With the BoE also now having to contend with the uncertainties of Brexit It looks like the bank could still be some way off normalising its monetary policy. This could be something that could have an increasingly negative impact on GBP exchange rates in the future if the divergence from US interest rates only grows larger.

Government Debt: Painfully Slow Progress

Government debt ballooned in the years following the financial crash, with the UK having one of the world’s largest budget deficits compared to GDP.

The coalition government elected in 2010 embarked on a series of austerity measures in an effort to curb spending and reduce the UK’s budget deficit, but the drop in consumer spending and economic activity over this period put further strain on the UK economy resulting in sluggish growth since the crash.

But even eight years on, the progress in cutting government debt remains painfully slow, with gross debt at the start of the 2018/19 financial year standing at £1,76tn, equivalent to 85.8% of national GDP.

Productivity: How to Solve the Puzzle?

In the years since the financial crisis, productivity in the UK has stalled and even now continues to lag behind rates achieved before the crash.

In fact, over the last decade domestic productivity growth has stuck record lows, with the Office for National Statistics estimating current levels of productivity are on par with when Britain emerged from the Napoleonic wars!

With a solution to the UK’s productivity ‘puzzle’ still to emerge, economists are becoming increasingly concerned about the UK’s long-term growth prospects. This sentiment is echoed by the Bank of England, which sees the UK’s lacklustre productivity as a major economic risk.

Conclusion: 10 Years on Britain Remains Stuck in First Gear

While Britain has certainty made some headway since the 2008 financial crisis, it’s clear the country isn’t quite out of the woods just yet.

Now, with Brexit looming, there are concerns it could be a case of ‘out of the frying pan and into the fire’ for the UK economy. Only time will tell.



Matthew Andrews

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