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A pleasant surprise on growth

Stephanie Flanders | 10:06 UK time, Friday, 23 July 2010

Of course, today's first estimate for UK growth in the second quarter of 2010 is a pleasant surprise. After several quarters where the City has been disappointed by the first official take on the pace of the recovery, a figure so far above expectations makes a welcome change. But it's always important not to read too much into one set of figures - however striking. That could be especially important today.

The figures show surprising strength in the service sector as well - up by 0.9%, three times the pace of growth at the start of the year - with much of that growth driven by government spending and business and financial services. But the big outlier in these numbers is construction.

This one sector which accounts for a tiny share of the overall economy was responsible for more than 0.4 percentage points of the 1.1% estimate for overall growth. Construction is thought to have grown by an astonishing 6.6% in the three months after March - after two successive quarters in which it shrank by 1.6%.

Graph on the contributions to GDP

This is not to suggest that the GDP figure is wrong (though it will almost certainly be revised one way or another). Output in the construction sector is notoriously volatile. What it does tell you is that, even if this first figure of 1.1% growth does turn out to be right, it doesn't necessarily suggest that the recovery across the entire economy will be much stronger than previously thought.

Strip out construction, and the pace of growth is very encouraging, but broadly consistent with what the surveys have been suggesting - that is to say,roughly in line with the long-term average for the economy, and broadly similar to the early stages of past recoveries.

If this were indeed a normal recovery, you would eventually expect the economy to start to grow well above its long-term trend rate, to make use of all the ready spare capacity created by an unusually deep recession. In that kind of an environment, this 1.1% estimate would not seem so strange.

But in the past year we have seen several European countries grow rapidly at the start of their recoveries, only to slip back into flat or even negative growth.

I'm not suggesting that will happen in the UK. But recent surveys suggest that confidence in many sectors is already beginning to ebb. With so much uncertainty hanging over the UK and global economy, no-one should assume that today's figure is a sign of things to come.

UPDATE 1208: A look back at history puts an interesting perspective on today's initial growth number. The last time we grew this fast was in the first quarter of 2006, and in the past decade there's only one quarter - the first three months of 2001 - in which the UK economy has grown by more than 1.1%.

But, if you go back further - to the mid-80s and mid-90s - quarterly growth of more than 1% was quite common. Then, as now, the economy had some extra room to grow as a result of the previous recession. But this was usually in what you might call the "mature" stage of the recovery, a year or two after the economy had started to look up. When growth has been this strong early in the upturn, it has usually slipped back - often quite dramatically.

To me the most interesting comparison is with the second and third quarter of 1981. Back then, the economy was recovering from five successive quarters of decline. The first recorded growth, in the second quarter of that year, was fairly weak - growth of only 0.2%. But in the third quarter, the economy grew by 1.4%.

This was seen as vindication for then Chancellor Geoffrey Howe, who had appalled all those economists by announcing massive tax rises and spending cuts in the spring Budget. In the end, Britain's recovery was fairly strong. But not before some pretty big bumps on the way.

Ominously, perhaps, the next GDP figure after that 1.4% rise in the third quarter was 0.0. The economy didn't grow at all in the last three months of 1981; six months later it grew by 1.3%, then it stagnated for another six months before growing rapidly for much of 1983. In line with what I said earlier, the quarterly growth rate was more than 1% in three out of four quarters in that year.

I'm not suggesting that past history can tell us what will happen this time - after a very different kind of recession, and a very different kind of fiscal and monetary response. It's also worth noting that policy makers at the time were given a different picture by the ONS. Most of the GDP estimates for the period coming out of the recession in the early 80s have been revised up, though this took place years after the event.

No, the lesson from all these past numbers is more basic: that quarterly GDP numbers tend to jump around, especially coming out of a long recession. There are going to be some big swings in the quarterly numbers before the true pace of the recovery becomes clear.

Comments

  • Comment number 1.

    Glass half empty? I'll be interested to see the up and down spikes in the market as this initially good news is passed through Stephanie's reality sieve.

    It just goes to show that most economic forecasting is no better than a bunch of hoodoo. Personally, I advocate reading chicken entrails to inform government's macro economic policy. It's more accurate, because its more random.

  • Comment number 2.

    I don't believe the figures.

    In the last decade the NSO change the way it calculated the CPI and indeed many of its figures so that imported product deflation from China pushed down the inflation rates that 'permitted' the insane interest rate regime that directly led to the collapse of the British banks and the appalling catastrophe of unsustainable private debt that will cripple a generation.

    Why should we believe this discredited office?

  • Comment number 3.

    What the figures do confirm is that construction is very important to the economy.
    The need to continue improving infrastructure and the housing stock is imperative even using publicly borrowed finance.

  • Comment number 4.

    This increase in GDP comes from the previous government policies and the new government's budget has not had its effect yet so we can expect things to get worse again.
    When GDP dips again around Q2 next year, I wonder who the government will blame.

  • Comment number 5.

    Well thats good news. I suppose the coalition will take credit for it having done so much to stimulate the economy but can anyone tell me what all these busy builders have been doing? It doesn't look as if they have been building new houses anywhere or are they building them underground?

  • Comment number 6.

    Whether the composition of growth is puzzling or not it does mean that Osborne should back track somewhat from his doom and gloom view of public finances. Pursuing the purge of public sector spending especially on capital projects will go some way to strangling the construction recovery and the inflow of tax receipts and diminished transfer payments to the unemployed and their families.

  • Comment number 7.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 8.

    You've got to take it as positive news for the present but surely a worry for the short term future as George's cuts hit the public sector

  • Comment number 9.

    I am going to try and be consistent.

    In earlier posting I have said that for Ireland it is still too early to tell whether their severe austerity measures will prove a sensible response or whether more gentle cost cutting would have been better.

    I have to be the same for the UK. It is a nice surprise but it is only one quarter and we need a full year or two of figures to be certain.

    Even if we are now in the recovery phase there is a lot that could derail the recovery

  • Comment number 10.

    Is it just me but wouldn't construction benefit from that big bit of building that is going on in the East End of London?

    With the Olympics just 2 years away should we not be surprised that construction is having some benefits from the biggest sporting event in the World being held in this country?

    Also, isn't the Govt building some decent housing for our soldiers, sailors and air crew to live in?

    I was in M&S yesterday - usually avoid Marks & Spencers on Sale days as I can't abide the hordes of women pulling clothes off the rails and stampeding the men.

    The place was almost deserted.

    Says it all about where the UK economy is going IMPO -double dip!

  • Comment number 11.

    Free money pumped into the economy for over a year.
    Only an economist would mistake these figures for growth rather than a splurge on a credit card.

  • Comment number 12.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 13.

    This comes as no surprise as the fiscal stimulus of GBP 200 billion of QE and nine years of public sector budgets seriously out of balance and overspent has sloshed a whole load of easy money around the economy.

    I expected a surge in the second quarter and this is continuing into the third quarter. I am not optimistic after that.

    So we have high growth, higher inflation than expected, low interest rates and construction doing well despite a collapse in the commercial rental market. My guess this looks very much like another housing bubble - perhaps a posh housing bubble - that could soon go pop with a loud bang! Construction reflects what is going on in the wider economy which is no wonder it is volatile at the moment.

    With the fiscal stimulus the public sector has also done very well: for now. However, the coalition cuts are still a long way off so the cuts coming into play now are the Labour cuts - sorry, efficiency savings, which were in the March budget. Don't fool yourself that these are Osborne's: his haven't arrived yet. The current cuts belong to Darling.

    The fact that banking is doing well is no surprise. They can buy money at a base rate of 0.5% and then sell it on at a gross profit margin running into hundreds of percent: loadsamoney and look forward to another fat bonus cheque courtesy of the Bank of England!

    So we have a building bubble, the last hurrrah of the New Labour spending boom and a false market in money created by the regulators to allow the banks to rebuild their busted balance sheets. This is not grwoth and this is not going to last very long.

    The calculated V shaped recovery is now long past the life of the stimulus that created it. The only way for this to continue is for the country to take on even more debt. However we know this is just not feasible.

    The problem of debt is what lies behind all our difficulties. There is obviously too much of it for the economy to handle as it eventually consumes any stimulus we throw at it. We will not come out the other side of these difficulties until this debt - both public and private - is finally resolved.

    The first element in that strategy has to be a return to sound money as without it there can be no sound measure of value. It is the failure to understand true value that has put us where we are.

  • Comment number 14.

    Given that a substantial chunk of this increase comes from the building industry, I wonder what the effects of the cancellation of the Schools Building Programme will have on GDP in the next quarter?

    And some of the increase in the Service Sector will be as a result of the World Cup, which is now over.

    How George Osborne can claim credit for the increase is beyond me.

  • Comment number 15.

    "...
    But it's always important not to read too much into one set of figures - however striking. That could be especially important today.
    ..."

    Spoken like a true politician. In other words this is just padding, rather than prodding at the soft bloated underbelly that is the economy. Does the government lobby the BBC on what to and what NOT to report on?

  • Comment number 16.

    Since this will undoubtably be hijacked by those making political scoring points, let me at least ask the question in an unbiased way. If this continues, does it indicate that Labour did the right thing (vs most other developed countries) in how they got us out of a deep recession, or does it mean the Tories are right in preparing to cut the defecit earlier (vs others)? Or, God forbid, both?

  • Comment number 17.

    Well I guess until we see some more sobering economic figures that are tinged with the projection of what’s to come, especially when the Condems cuts start to bite, I suppose we’ll all just have to put up with that boyish gleeful grin of George Osborne as he tries to take credit for the positive numbers, nothing to with previous government having had a massive public building programme that‘s still as projects being completed.

    Once all these current building contracts have been completed, what’s going to happens to construction industry when there are no more schools, hospitals or roads being built, let alone the vast scaling back on maintenance for these big three ??

    Steph’s right we shouldn’t read too much into one set of figures, let’s see what they look like in 6 or 12 months time, George Osborne will perhaps be sporting a reality- checked frown.

  • Comment number 18.

    Another perspective might be that after 0.5% interest rates for over a year, £200 Billion of Quantative Easing and Public Sector Projects which are gradually being cancelled by the new Government, it is about time we had growth like this - Of course none of the above will last forever.

  • Comment number 19.

    I said yesterday on this blog... At the moment we keep getting naive reporters saying "look, that wave came in more than the last one" thinking that this proves the tide is not going out.

    I wonder how many people did what I did this week, and logged onto the Inland Revenue website and greatly marked down the payment on account for the July second instalment of my self employed tax.

    On the bright side, I am being more inventive and creative than I have been for years in trying to open up new business opportunities, which at least makes life more interesting.

  • Comment number 20.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 21.

    In the run-up to the election did not Labour push through as many projects as it could for building schools and hospitals?

  • Comment number 22.

    So it might be good news...or it might not be.
    After such an incisive insight, one can only feel confident about the quality of expert opinion provided by the BBC.

  • Comment number 23.

    I don't usually get party political, I really don't, but wouldn't it be fair to point out that in every estimate about growth and strategy for growth, the much-maligned Labour government seems to have been right so far and should be being given the credit for every one of the encouraging developments indicated by figures published so far?

    More worryingly, if the above is true, are we right to feel really threatened by the 'cut everything and cut it now' approach being taken by this clumsy coalition? We haven't seen a single indicator of the effects of these new policies yet - the construction industry certainly isn't going to be building any schools in the near future.

  • Comment number 24.

    I expect more excuses as to why interest rates should stay at an all time low despite all the indictors suggesting otherwise.

  • Comment number 25.

    All this user's posts have been removed.Why?

  • Comment number 26.

    A last hurrah for construction before the axe falls

    http://brickonomics.building.co.uk/2010/07/a-last-hurrah-for-construction-before-the-axe-falls/

    Apparently more public money was spent on construction in the past quarter than in any month on record - and all we got was just 6.6% growth.

    Now that there is simply no more money watch the construction industry die a death followed by the much anticipated UK housing crash.

  • Comment number 27.

    Its amusing to see the politicians practically falling over themselves to take credit for this. How quickly the smiles will drop and the blame game begins when the figures inevitably start to fall again.

  • Comment number 28.

    #13 wrote "My guess this looks very much like another housing bubble - perhaps a posh housing bubble - that could soon go pop with a loud bang!"

    You could be right although I suspect a posh housing bubble would not make that much difference to the economy - the vast majority of people buy normal houses (3-4 bedrooms maybe a garage) not 6-10 bedroom + swimming pool , cinema room etc mansions in 5+ acres of gardens.

    To the extent that posh housing is doing well it may have nothing to do with the UK economy. I know London is rather different from the rest of the country but in London the seriously posh house prices are being driven by people immigrating to this country. In previous years it was Russians over the last 6 months it has been Greeks and Italians fleeing their own country.

  • Comment number 29.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 30.

    14. At 11:30am on 23 Jul 2010, SpacedOne wrote:
    ....How George Osborne can claim credit for the increase is beyond me....


    Quite. George Osborne's budget was only one week before the end of Quarter 2 and these growth figures include monies spent directly by the public sector in the private sector and wages spent in the private sector by public sector employees - reducing such expenditure reduces growth in the private sector. Osborne knows that.

    So, when Osborne says cutting the public sector is good for the private sector he is talking about transferring responsibility for the running of public sector operations to the private sector.

  • Comment number 31.

    It just goes to show what a nonsense the UK GDP model when viewed by itself, really is:-

    - Construction normally does do better in the second quarter as a seasonal factor and with many projects on hold for years the decks are being cleared to avoid litigation ... and there is the Olympic Games factored in their and many schools to be built and cancelled for whcih Byrne said there is no money left ... the money for the projects was not even there in the firts place ... without more government borrowing

    - Outside London there is a serious ongoing 'recession/depression' in almost every part of the country and the bad GDP model just goes to show that when the standard of living for 60%- 70% of the UK population is falling... the insultingly nonsensical GDP model is showing primary school maths level growth in the money shuffling and vested interest 'money men' sectors of our economy.

    This is not a bull market ... but the 'bull' element does ring a bell somewhere.

    Never heard so much media clap trap when so many are worse off than the 'I'm all right Jacks' this is growth for the non doms, multi nationals and QE spongers ... this is also the QE effect wearing off owing to time lag.

    Total nonsense!

  • Comment number 32.

    The construction figures should be broken down to determine how much of this is related to stimulus funding. Governments are very slow in these processes. Determining projects,bids, review, planning, permits, land purchase, demonlition, etc. Some of this may be monies from two years ago finally getting into the economy. Bureaucracies do not operate with any sense of urgency.
    It is always difficult to determine the accuracy of financial services as they spect a decade developing these incestious relationships of fees and associations that create profits for them when there are none for anyone else.
    The average person, whoce purchases represent over 70% of economic activities, has gained nothing in this process and lost much. Until this matter is addressed things will move slowly.

  • Comment number 33.

    • 21. At 12:02pm on 23 Jul 2010, tawse57 wrote:
    In the run-up to the election did not Labour push through as many projects as it could for building schools and hospitals?

    Not nearly enough if yours was one of the schools that has had the rug pulled at the very last minute in the destruction of the Building Schools for the Future programme. One of the many instances where the private sector is going to get shafted almost as much as the public sector very soon.

  • Comment number 34.

    Am I just being too sceptical or are the two areas that have jumped the greatest, Construction and Government with the balance been made up by business services, all of whom would have benefited by the last governments push to implement / spend as much as it could prior to loosing the election. There is good new here in as much there has been an increase in the leisure industry. However alarmingly production and distribution are both down which does not board well for industry and commerce.

  • Comment number 35.

    I dont normally post here but I have read so much almost gleeful doom and gloom over the last year or so I sometimes wondered if I had logged onto the Daily Mail by accident. So with some possible good news I though I might make a couple of points.
    I wonder-just wonder did the previous discredited crowd actually get the strategy right? I have to say I had had my fill of Brown BUT Old fashioned Keynesians always said in a recession spend and then claw it back when the recovery is on course. (I do despair of those who try and compare an economy with the finances of the individual household-economies can spend and borrow in terms of centuries-households cant-household individuals die)
    We actually need abit more optimism and stop talking ourselves into a further dip. Economic prospects are about confidence. Time we cut the doom and gloom and got on with it!
    Admittedly,in my opinion the Uk economy is out of balance in terms of manufacturing but then again so is every other rich country bar dare I say it Germany.
    trouble is look at how we actually value manufacturing in this country-too often rotten wages, poor status, no apprenticeships (cannot include laughably bad NVQ tick box training) etc etc
    Just as a throw away I worry The Eton/Oxbridge millionaire boys are actually enjoying the slash and burn strategy as a way of getting their laisseez faire stuff through. Might be wrong there -no doubt some indignant poster will tell me I'm way off and should get back to my factory.
    Any way I feel better after having a rant and must get back as the hooter is sounding.

  • Comment number 36.

    Well the BBC introduced it on the news as "from bust to boom" - so clearly their unbiased opinion is already made up!

    Luckily most people can see right through this, I mean does it stack up? A dwindling BoP but an increase in growth?

    So who was sitting on the all the wealth? - I thought we were borrowed up to the eyeballs. Lets see shall we....

    Y = C + I + G + (X − M)

    C - Well there has been some consumption - old habits die hard you know!
    I - Investment - well that's been a bit on the slow side, unless of course you're a FTSE 100 corporation.
    G - Ah yes, now there's been rather a lot of that, 7% of GDP by my last calculation (that's just QE)....now what was that growth figure again? 1.1% was it?
    (X − M) - Net exports....whoops I mean imports....are in fact widening as we slowly realise that all we make is 'big ticket items' but we don't do the mass production thing and guess what gets cut first?

    Fascinated to know how the Beeb came to their conclusion and whether they think a boom constitutes any 'growth' of any description now.

    P.s. It was on the sheepole's 12 0'clock bulletin in the headlines before you decide to comment this out for "not wanting to cause harm or offence to anyone - i.e. the BBC"

  • Comment number 37.

    This on its own should not be taken to mean anything. I do not think even the so called "experts" can guage which way the growth figures will go from here. After all, none of them were falling over themselves to predict the recession in the first place in 2007/2008. If the public sector building spree that has been going on over the last few years has contributed to this then it has all been on borrowed money. False growth.

  • Comment number 38.

    The figurs are really unimportant. Until we address the strategic problems in the global financial system and the strategic imbalance within our own economy it is all a load of tosh!

  • Comment number 39.

    The figures are not a great a surprise because we were on the right track preparing to continue with an economic strategy that supports growth. Have a look more closer at the next couple of quarters to examine the real detail

  • Comment number 40.

    5. At 10:41am on 23 Jul 2010, Ian wrote:
    Well thats good news. I suppose the coalition will take credit for it having done so much to stimulate the economy but can anyone tell me what all these busy builders have been doing? It doesn't look as if they have been building new houses anywhere or are they building them underground?
    ------------------------------------------------------------------------
    No. AD was quick off the mark to claim that. Even in the fast world of today, it takes around three months minimum to prod the economy and expect it to react. The Coalitions Budget was June, with some of the changes not to take effect until next year. Q3 & Q4 2011 will be interesting and more revealing, subject, of course, to nothing lese coming along to 'bring out the safety car'.

    Comstruction-wise, there are some indications in the south-east that things are picking up in both residential and commercial. In the north-west its grim, as Dempster pointed out. I understand its patchy in the Midlands. More info anyone?

  • Comment number 41.

    Hate to be a bore,Stephanie , but ........


    ........I told ya, didn't I?

  • Comment number 42.

    This significant growth spike is the worst news possible for the Condems. The pendulum has been pushed to its maximum by labour. Lets hope that we all enjoy the gush of wind through our hair while hirtling downward towards a state of immobility. Smaller government means less resistance and greater speed towards the inevitable crash. It will be a while before we harness the energy of the counter-swing. I say seven years

  • Comment number 43.

    With the massive stimulus/deficit is it not surprising that the economy was growing quite rapidly. And because the markets expected a Conservative government to make cuts and introduce sustainable public finances we did not have high interest rates choking off recovery.

    Given our confidence in the Coalition and its economic policies, my firm is now planning a 25% increase in staffing levels. Hitherto we have been building our cash reserves (up over 140% since the beginning of the year) but we feel it is now time to increase our capacity. And we have also increased investment in IT and R&D.

    Let's hope lots of other businesses up and down the country take a similar attitude.

  • Comment number 44.

    "Am I just being too sceptical or are the two areas that have jumped the greatest, Construction and Government with the balance been made up by business services, all of whom would have benefited by the last governments push to implement / spend as much as it could prior to loosing the election."

    I don't think you are too skeptical. I've already seen a number of anecdotes today from people in local government and in the construction industry about how they knew that this present government would be bringing in deep cuts and therefore rushed projects from the planning phase in the attempt to protect them from cuts.

  • Comment number 45.

    I agree with those who say GDP figures for one month are useless for policy setting and it's even worse when one figure FORCASTS such as the late OBR produced the basis for policy. Nevermind we will have revised OBR soon. The tory attack dogs on here keep repeating their mantra about Labour expenditure and qantative easing but recovery policies are about timing. The tories would really have prefered Labour to have spent the money on benfits for the unemployed rather that get anything for it: they might have got a majority The Condems are now going to do just that. Unless you are going to sack 'frontline staff' in the public sector expect private sector job losses to rise disproportionately as government agencies cut procurement from the private sector becasue of reduced budget allocation.

    Oh and by the way what excatly has happened to the department budget underspends. Has Michael Gov cornered the lot for his Academies or is it for the two weeks freebee for the 16 year olds or maybe. How are these being paid for?

    The 'Cameroon' faction in the Tory Party and the 'Orange Book' Lib Dems want a 'fundermental change' ....a revolution. ...they are in hurry and are using the 'recovery' to bring this about.

  • Comment number 46.

    Sadly, I feel that on the issue of the broad economic judgement that this feels more like 1970, when an outgoing Labour Government bequeathed an improving (after a couple of difficult years) economic situation that was squandered by a Tory Government which came into office with strong ideological convictions (Selsdon Park conference) but which collapsed into disarray as it proved incompetent at dealing with a series of internal and external shocks. I think it is possible to make a fairly robust case that Labour had put the economy back on a track to a slow recovery (this quarter and the previous one are entirely down to Labour's tax and spending decisions and finance sector decisions -nothing Osborne has done would appear before the revisions to this data and in the later quarters of this year). It is not just because I believe Osborne will prove as clueless(Osborne could easily have given himself 6-9 months to assess things but instead jumped in with both feet) as Barber that I think things will go wrong . Ability/talent of ministers does also matter and I see a lot of evidence of a 70s style shambles. Gove is already a disaster (just look at the cartoons). The Lansley health reforms are back of the envelope, and essentially cede power to a powerful trade union the BMA, and will quickly give the lie to the notion that the NHS is safe with the Tories ( does Lansley know that if they don't get their own way, and basically lots of dosh, that GPs will threaten mass resignation). Cable announces support for a graduate tax but gets no support, meaning big tuition fee rises must be on the way. Later this year we will have huge political disarray over the Clegg voting reform. Markets will not like political turmoil and people marching on the streets. Not anticipating a good Autumn - still, could be worse, seventy years ago we were in the u-boat war and not as the junior partner of the USA.

  • Comment number 47.

    We are still asking the wrong questions and looking at the wrong figures.

    Who cares if GDP is up? It is a highly manipulated figure which gives no indication whatsoever of the long term sustainability of the country's economic policies.

    Any party claiming this shows we are 'doing great' is no more correct than one looking at the figures in 2006 and drawing the same conclusion. Of course the figures will keep going up when you keep spending money you don't have, that doesn't mean it's a good idea!

    Capitalism is fundamentally short-term and reactive in its actions and thinking. Government's role should be to guide things in the long term interest of the country. Unfortunately this is unpalatable - and derided by the opposition - if it involves short term pain...

  • Comment number 48.

    With inflation currently running at 3%ish (depending on which measure you use) I am not particularly impressed.

    I also expect a big fall in construction due to cancellations of school building projects etc.

    I would be impressed with a growth of 1% ish this time next year.

  • Comment number 49.

    35. At 1:58pm on 23 Jul 2010, jimmymk wrote:

    "I dont normally post here but I have read so much almost gleeful doom and gloom over the last year or so I sometimes wondered if I had logged onto the Daily Mail by accident. So with some possible good news I though I might make a couple of points.
    I wonder-just wonder did the previous discredited crowd actually get the strategy right? "

    I'm sorry to come over all doom and gloom but the problems extend long beyond the previously discreditred crowd (although I'm not sure if you mean previously discredited, or the discredited crowd who wre in previously)

    ...anyway - the long term trend is for Government debt to grow and grow - this is because the banks are the best at capital accumulation.

    If one participant in the market is accumulating all the capital - the others must begin to owe it.
    It would take 50 years of austerity to reverse this trend - both ideologies will fail.
    Keynesian borrow and spend would fail because as you said 'claw it back in the good times' - well the good times are over so there won't be any clawing back
    Cutting public sector spend will reduce the deficit - but also the growth and consequently tax receipts, made worse by the large sections of private sector which rely on public sector spending (i.e. construction)

    The argument between economists is like Gerrard, Upson and Lampard arguing who scored the best goal in the world cup.
    The answer to that really doesn't matter as the team was knocked out - scoring a great goal is scant consolation for a defeated team.

  • Comment number 50.

    It is not surprising that the vast majority of the growth in GDP is in the private sector as George Osborne points out. Is it possible to say how much of it, particularly the pick-up in construction is commissioned by public bodies?

  • Comment number 51.

    I believe it is a little early for the Lib-Con pact to suggest their policies are working

  • Comment number 52.

    A builder friend of mine told me last week that the recession was really beginning to bite home now and he was running out of work on new houses quite rapidly.

    So I just don't believe that construction figure and even if it is correct then of course once again it's the wrong sort of economic growth. The one sector we really need to grow is manufacturing.

  • Comment number 53.

    It has hardly rained in England since March. Grain crop yields are going to be at least 25% lower than average, because even if rain arrived now, it is too late.

    But Economists of the late 20th Century ilk still waste their time looking at data collected by oddballs and arranged as statistics and figures. That would be fine, except that ordinary intelligent folk are supposed to be in thrall of these Economists, and are having their time wasted.

    I would rather waste my time counting the number of cars in a traffic jam.

  • Comment number 54.

    These figures indicate that QE and the 0.5% basic interest rate is working, with the Labour government pumping a lot of the new money into public investment, especially schools and hospitals and conniving with the Bank of England to disregard the over target inflation out turn. Demonstrating that Keynes was right.

    The worry is that now that the really rich have taken over in government, they will revert to the monetarists policies which caused the 2008 banking crisis and choke off the recovery.

    The credit famine, consistently reported by business, suggests that the money supply is still not adequate to support the economy, if the banks are to continue behaving more cautiously.

  • Comment number 55.

    The reason sovereign debt and unemployment are both down on estimates as recent as March is because you and I agreed then Stephanie: GROWTH IS THE ANSWER.
    Gloom & Doom merchants have sold us short.
    Britain is in no mess. We're miles better than both the Eurozonne, the USA and Japan. Their banks have gone to pot.
    It's time our miserable government turned back to the steady recovery plan of the Brown government. And have the humility to admit they were so wrong.
    The correct way to end the Wall St crash is to 'keep calm and carry on'. Not adopt teenage panic measures.

    When unemployment grows later this year - and our incomes dip - they'll be only the Con-Dems to blame. And every one of their followers.

  • Comment number 56.

    How do we find out more detailed information? I'm intrigued to know where this massive rise in construction has actually come from. I was hoping your article would explain but it hasnt.

    I've checked the ONS website but their PDF of this data (where you got your graph from) doesnt elaborate at all.

    Osbourne has said all but 0.1pc of this growth has come from private industry, where has he got this figure from? I feel very uninformed by news websites.

  • Comment number 57.

    " 26. At 12:30pm on 23 Jul 2010, tawse57 wrote:

    A last hurrah for construction before the axe falls

    http://brickonomics.building.co.uk/2010/07/a-last-hurrah-for-construction-before-the-axe-falls/"

    You, sir, have answered my question. That was the information I was looking for.

    So these figures have been bloated by public sector investment, which we wont have in the coming quarters due to the new government. The next year shall be interesting.

  • Comment number 58.

    It is the job of government to be positive, so as long as you remember that and do not take anything they say on face value you will not get angry when you are told that things are getting better when that is questionable at best. Of course, it is always getting better for someone somewhere so as to not be an untruth. The anger has left from the bankers robbing the treasuries and everybody else and the governments realize they were taken by the bankers but can't admit it. They have no real plan because the banks are still in control of the money and they would like to collect interest on loans to governments to overcome the crisis created by the banks. It would have been best to throttle the bankers to begin with but the ruling class finds that unacceptable because they all understand it could be them next. This is what happens when economic policy is for the benefit of the wealthy. Wrong decisions for the wrong reasons benefiting the wrong people....hard to make that work.

  • Comment number 59.

    Its so wrong to criticise the Con Dems for these terrible figures and so typical of the BBC. These growth figures are entirely the fault of Labour and their misguided attempts to stimulate recovery.

    Give the ConDems another year and a sound negative trend will emerge as they build a recession worthy of the name.

  • Comment number 60.

    The growth figures indicate that the previous Labour Government's approach was working. Won't be long beofe the Coalition Government's cuts agenda throttles this at birth. Cuting back too severely too soon is the wrong approach.

    I also think that it is a Coalition Government 'con trick' to say that the Public Sector must take its share of pain, with, among other things, radical proposals to prune back the civil service, reducing the level of redundancy payments for Government staff before any cuts are made and looking to end the final salary pension scheme for staff. For the vast majority of civil servants, they don't have a 'Gold Plated' pension. It occurs to me that if any grouping have such a pension, it is MPs! Haven't heard any proposals to radically reduce their entitlements/benefits!! Government gets its money back quicker if it spins an argument that we are all in this together - but we shouldn't be, because the public sector had no hand in this.

    The Public Sector, including the Civil Service, did not bring this country to the edge of ruin. It was unscrupulous individuals in banks, building societies, other corporate financial institutions, stockmarket traders etc who did this, fuelled by personal greed. I think the Private Sector should be paying most of this back after years of utterly irresponsible lending to people who they must have known couldn't really repay the debt/ and trading on the stockmarket. The banks could make a massive contribution to the debt by not paying 6 figure bonuses to senior executive personnel and sending the money to the HM Treasury.

  • Comment number 61.


    I'm deeply sceptical about this announcement. Seems to me that the BoE has been getting twitchy about enduring inflation levels especially as the planned vat hike is yet to take effect. Against previously announced GDP growth a controlling interest rate rise would have been be unthinkable but with this release it is well and truly on the table - fancy. Sterling has taken a jump on the news no doubt in anticipation of the above.

  • Comment number 62.

    Did the cat make any sound when it bounced?

  • Comment number 63.

    Nodding to #19

  • Comment number 64.

    53. At 5:30pm on 23 Jul 2010, verano wrote:
    It has hardly rained in England since March. Grain crop yields are going to be at least 25% lower than average, because even if rain arrived now, it is too late.
    -----------------------------------------------------------------------
    Just had a walk between two fields. One harvested already. Another gloriously full of strong bulging ears of wheat. Looked pretty good to me.

  • Comment number 65.

    #22 wrote "After such an incisive insight, one can only feel confident about the quality of expert opinion provided by the BBC.


    I would be very careful for being confident about any glorified economic forecasting from any source specifically so called the “experts”, since much of their speculative hypertheoretical theories are derived from the same sets of data points. We wouldn’t be in this mess if the experts were right for the first time…

  • Comment number 66.

    Since it is the House Building Sector leading this current Mini-Boom this Quarter, for this is hardly very surprising because Firstly: - Its Summer - Time, which is traditionally the best time of the year to Build or have Building , maintainence carried out after the Bad Winters weather of the last Quarter.

    And Secondly, and more importantly - there is a RUSH on now, to have completed ALL Building Works Projects BEFORE the Vat Rate rises to 20%, and Public Sector Cut - Backs come into force from January 2011 onwards, when if anything the UK's Building Sector WILL then go into terminal decline for many years to come.

    I have also noticed that there has been a up-turn in High Street selling in the UK of Home Grown products, but this HAS NOT been mirrowed with UK Export Growth. Therefore, too much internal Growth will lead to a rising level of Inflation which could see UK Domestic Interest Rates start to rise above its current 0.5% Level by the end of 2010, and this will make Mortgages dearer just at a time when many will start to lose their Jobs, again owing to Budjets Cut - Backs which could very likely lead the UK back again into Recession etc:.

  • Comment number 67.

    What is the function of a professional, surely to understand the complexities of their field of expertise and make reasoned extrapolations as to cause, however diverse, and effect? If a perusal of the data has not made the growth patterns clear, or a greater understanding of the cyclical patterns of economic activity have not been factored to the problem - then what is the point of this article? You stike me as a bit of a weather forecaster, much discussion of the obvious, a little hint of the unknown, yet a lack of any commited extrapolation. My son once purchased a wonderful weather forecasting device at The Jamaica Inn on Bodmin Moor; it was called a "weather stone", the instructions as to use were very clear "place on window sill and observe. The clear explanation of it predictive outcomes left nothing to chance, as exampled: if its white it is snowing; if its wet it is raining; if its dry and hot it is sunny, if you cannot see it it must be foggy. Now that is what I call expert advise, practical explanation of the unfathomable with clear, precise, definitions and outcomes. Like the emperor and his new clothes we have moved into an era of "professional" rune casting on a par with the ancient celts and their henges, lots of mystic ceremony in clouded incantations to all powerful, all knowing, dieties - but flim flam all the same.

    As the various blogs that proceed this point demonstrate much more relevant comment was missing from the article than relevant economic analysis. Either the released figures contained within their detail the answers that were being saught, or the debate was as irrelevant weather forecasting (which, as highlighted by the disagreement on harvest forecasts are all subjective). Maybe its time to leave Television House/Centre and get out into the real world and see, as with the stone, what is really going on, rather than playing the overcomplex games of the professional.

  • Comment number 68.

    Anytime: ghostofsichuan writes excellent posts every time


    In other news:

    35. At 1:58pm on 23 Jul 2010, jimmymk wrote:

    "I dont normally post here but I have read so much almost gleeful doom and gloom over the last year or so I sometimes wondered if I had logged onto the Daily Mail by accident. So with some possible good news I though I might make a couple of points.
    I wonder-just wonder did the previous discredited crowd actually get the strategy right? "

    Please understand its not gleeful.


    Sorry to repeat myself but Pestos blog seemed to be getting a bit dry:

    55. At 00:28am on 24 Jul 2010, you wrote:

    Sorry, been busy today so haven't read all of the above. Sorry if I repeat anything or try to add anything to a debate that has has moved on.

    http://www.bbc.co.uk/news/business-10737352

    http://www.bbc.co.uk/news/business-10747548

    http://www.bbc.co.uk/news/business-10741328

    http://www.bbc.co.uk/news/business-10740185

    http://www.bbc.co.uk/news/business-10741094

    http://www.bbc.co.uk/news/business-10739538

    http://www.bbc.co.uk/news/business-10726444

    http://www.bbc.co.uk/news/uk-10724560

    http://news.bbc.co.uk/sport1/hi/football/teams/c/crystal_palace/8850376.stm

    http://www.bbc.co.uk/news/business-10739111

    http://www.bbc.co.uk/news/business-10724884

    And companies are buying other companies, surely a sign that liquidity is back.

    http://www.bbc.co.uk/news/business-10746025
    http://www.bbc.co.uk/news/business-10708737

    http://www.bbc.co.uk/news/business-10733851

    http://www.bbc.co.uk/news/business-10736727

    http://www.bbc.co.uk/news/10713376
    Even jockeys are getting a 10% pay rise.


    Phew. Well thank goodness the crisis is all over. Today has been a good day. I can cancel that order for market cornering wheat I put in and buy a new car, a house, that Maldives cruise I've had my eye on and buy some shares in the banks and BP. After all, I wouldn't want people to think I was poor.

    Nothing to see here, please move along. Isn't it about time we learnt to hug a bank and realise that everything is rosy in the English country garden?

    If companies are making money they have figured how to take more money from us.

    Or is it?

    http://www.bbc.co.uk/news/business-10729565

    http://www.bbc.co.uk/news/business-10736517

    http://news.bbc.co.uk/sport1/hi/football/teams/s/sheff_wed/8847626.stm

    http://www.bbc.co.uk/news/world-europe-10739152
    Fraud and corruption seems to be rife at the moment and so early into the recovery.

    http://www.bbc.co.uk/news/business-10737826
    http://www.bbc.co.uk/news/business-10730852
    In the summer? Isn't that the best time to sell a house? (I haven't researched that comment (it's late))

    http://www.bbc.co.uk/news/business-10739111
    A repeat link. Is the fact that Med holidays are cheep a good thing or just exposing other exposures?

    http://www.bbc.co.uk/news/business-10736126
    Glad I'm not flying from any of the mentioned airports. I wonder if there will be an impact upon my return!

    http://www.bbc.co.uk/news/world-africa-10735255
    Big business still acting amorally.

    http://www.bbc.co.uk/news/business-10732597
    7 banks fail a flimsy stress test. Urm.

    http://www.bbc.co.uk/news/entertainment-arts-10711711
    'Freeview'? 30 souvs to you gov.

    I make that 16 - 10.

    That's all on the one website in the one day (apologies for the limitations). So, how do you guys feel? Do you feel stimulated?

  • Comment number 69.

    cameron taking credit is a sham as i see it.

    its browns policies bringing down the england dept.
    also it wasnt brown that dropped us in the mire it was that loser from sedgefield.

  • Comment number 70.

    Yet again with the "growth" proclamation ... always "growth". Growth is dependant on the excess of resources. Guess what .. consumption is at a global level unprecedented in human history. Production costs more than it ever did before because fiat currency is toy money controlled by the $cum money lenders.

    Look further than the car in front of you.

    As an economist can you go out on a limb and put two and two together?

    Nah .. didn't think so.

  • Comment number 71.

    70. At 10:39am on 24 Jul 2010, TheCynicalSasquatch wrote:
    Yet again with the "growth" proclamation ... always "growth". Growth is dependant on the excess of resources. Guess what .. consumption is at a global level unprecedented in human history. Production costs more than it ever did before because fiat currency is toy money controlled by the $cum money lenders.

    Look further than the car in front of you.

    As an economist can you go out on a limb and put two and two together?

    Nah .. didn't think so.

    -----------------------------------------------------------------------
    What is wrong with growth? Kinda organic is it not?

    Someone wanted to replace my motor racing analogy with one from the world of nature, but you have lots of growth there. Rampant sometimes, like this year thanks to the weather. Perhaps less so in times of drought or continual rain. Growth, along with death and decay and stuff.

    But back to the motorsport once more and your apparent doubt about, or dislike of, growth.

    Back in the 1960's the teams in Formula 1 would number in full-time personnel terms, perhaps a dozen. Definitely no more than twenty.

    Now the smallest of teams would have four or five times that number on the payroll. I think I heard recently that McLaren have 500 working for them now, just on F1. Now some of that would have been caused by M@d M@x changing the rules every other month. And some of it would be down to the B*rni* & M*x show extracting loadsa dosh from all sorts of poor punters and handing some of it over to the teams. But a whole heap of it would be pure 'organic' growth. More people wanting to do more, be better, achieve, try for something else, develop ...

    When some posters were stuck in a loop of cursing bankers and wanting something better, the inevitable suggestion of small and local - credit union, building society, etc - was made.

    That didn't satisfy them. Not good enough. Not powerful enough. Not resilient enough. But banks weren't big when based in a goldsmith's shop. Building societies weren't big when they started in High Street, Downtown, Smallshire. They grew. Growth happened.

    Who wants the opposite of growth? Apart from middle aged posters on a BBC web-site who might just take their eyes off the the screen and look down at their middles!

    For sure the economic situation is serious. For sure, some retrenchment, some scaling down might be good and a way of achieving some better balance. But everything is not going to stop right now and be frozen. Negative inflation would, in my view, be a good thing but ironically ... guess what ... that would actually produce growth!

  • Comment number 72.

    John_from_Hendon is of course right
    1) Believing that the UK would soon join the euro Tony Blair replaced RPI, our tried and tested measure of inflation, with CPI - which unrealistically excludes housing costs.
    2) The huge growth in China and India meant a steady stream of cut-price products arrived in the West depressing inflation figures.
    3) Central banks thinking that the sceptre of inflation was slain kept interest rates too low
    4) Central banks sticking resolutely to their mandate to control inflation ignored rocketing asset, particularly house, prices (remember Alan Greenspan's irrational exuberance)
    5) Low interest rates and rising asset prices fuelled a borrowing binge which, in turn, further fuelled more borrowing to buy overpriced assets
    6) As Evan Davis, when he had your job Stephanie, famously said, what can't be sustained, won't be sustained
    7) The lending binge ended as liquidity dried up
    8) Banking crisis - recession!!

  • Comment number 73.

    71. At 3:50pm on 24 Jul 2010, Up2snuff wrote:

    What is wrong with growth? Kinda organic is it not?

    ------------

    That is the real problem. Stephanie and economists like her depend on readers who like you, who don't get it. Like I said about "looking further than the car in front" was a big clue.

    No offence but I'd prefer to debate with someone has an understanding of economies, toy money, the legacy of the $cum lenders, depleting resources etc

  • Comment number 74.

    73. At 7:12pm on 25 Jul 2010, TheCynicalSasquatch wrote:
    71. At 3:50pm on 24 Jul 2010, Up2snuff wrote:

    What is wrong with growth? Kinda organic is it not?

    ------------

    That is the real problem. Stephanie and economists like her depend on readers who like you, who don't get it. Like I said about "looking further than the car in front" was a big clue.

    No offence but I'd prefer to debate with someone has an understanding of economies, toy money, the legacy of the $cum lenders, depleting resources etc

    ------------------------------------------------------------------------
    Well, it's very easy to dismiss this bear of very small brain as one 'who doesn't get it' but you are thinking about and talking about a subject on which there can be many views with many of them neither completely right or completely wrong.

    It's very easy to say "Oh the whole world is dreadful", "Sweep it all away", "String up the bankers" but you need to have a practical replacement for what exists already or practical changes or tweaks to fix bits of the system that can be changed at this moment in time. Hopefully, without making other things worse.

    I think if you check my past posts you will see that I have a view both on the long game and the short one and the bit in between. To keep my motorsport analogy going, I am interested in the whole race organisation, the rules, the Officials, the marshals, the teams, the cars, the drivers, the spectators and the races. Not just one race but the whole season. Then the history, the story of series past. The thoughts and hopes of seasons to come!

    Is your 'long view' as long as that? Is your 'wide view' as wide as that? Then we have something in common.

    Hey! Let's be careful out there today ...

  • Comment number 75.

    GDP is quite flawed anyway. It does not take into account debt! IT's over used as a measure of recession, especially when employment levels around the world are so low.

    We have £200B of QE, £160B of gov debt amounting to ~12% of GDP and we get 1% growth? Have people lost their minds?

    It's like getting a pay cut, taking a 10% loan to service your pay difference, and then saying, what pay cut, I didn't have a pay cut? Then you somehow make that 10% add only 1% of value to you.

  • Comment number 76.

    re #75
    In the spirit of my #74, what would you put in the place of GDP as a measure?

 

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