Britain 'will be Europe's top economy by 2030'

Kingdom Of Great Britain

A rising population, a low-tax regime and insulation from the worst of the eurozone's problems leave Britain on course to overtake Germany as Europe's biggest economy within the next two decades, according to a study released on Thursday.

The annual world economic league tables from the Centre for Economic and Business Research (CEBR) predicts that Germany – for decades Europe's powerhouse economy – will have a smaller economy than the UK by about 2030.

Although strong growth by emerging economies such as India, Brazil and Russia mean that the UK will slip down the global rankings over the next two decades, the CEBR said it would be the second most successful western economy after the US.

"Positive demographics with continuing immigration [and] rather less exposure to the problems of the eurozone than other European economies combine with relatively low taxes by European standards to encourage faster growth than in most western economies," the report said. "Issues for the UK include the need to further reorient its exports to the faster growing markets, an unresolved relationship with the rest of the EU and the possibility of breakup – highlighted by the referendum on Scottish independence in September 2014."

The CEBR said it used forecasts for growth, inflation and currency values to compile league tables of the size of economies measured in US dollars in 2013, 2018, 2023 and 2028. It said the predictions needed to be treated with caution, especially in light of the unpredictable fluctuations in currencies.

But the CEBR said its model showed China overtaking the US to become the world's biggest economy by 2028, by which time both will be five times as big as India, in third place.

For some years, economists have been trying to assess when China will overtake the US. The CEBR said it would take longer than some analysts have suggested due to the continuing performance of the US as the west's strongest economy and the slowing down of the Chinese economy.

India is expected to overtake Japan as the world's third biggest economy within 15 years, with Brazil fifth and Germany only just ahead of the UK in sixth by 2028. The CEBR said "Abenomics" – the anti-deflation strategy named after Japan's prime minister Shinzo Abe – would lead to a weak yen for the foreseeable future which would affect the dollar value of its national output.

The CEBR said: "Theoretically Germany should continue to perform well in future years. However, on the assumption that the euro does not break up, a combination of weak European economic growth, a depreciating currency, the requirement to bail out ailing economies in the rest of the eurozone and increasingly adverse population trends mean that in this forecast Germany eventually slips down the league table.

"Indeed, Germany is forecast to lose its position as the largest western European economy to the UK around 2030 because of the UK's faster population growth and lesser dependence on the other European economies."

The study found that a break-up of the euro would improve the outlook for Germany, since it would have a "harder" currency and therefore higher GDP in dollar terms. "A deutschemark-based Germany certainly would not be overtaken by the UK for many years, if ever."

Other eurozone countries will suffer even sharper falls down the league table, the CEBR said. France, currently fifth, will drop to 13th by 2028, while Italy, eighth, will be the world's 15th biggest economy in 15 years' time.

The UK, currently sixth in the world league table, will move up a place by 2018, overtaking France. But by 2023 it will have dropped to seventh, having been displaced by India and Brazil.

Powered by Guardian.co.ukThis article was written by Larry Elliott, economics editor, for The Guardian on Thursday 26th December 2013 07.01 Europe/London

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