UK economy: Half-speed ahead

 

For once the official estimate for growth in the last three months was in line with the unofficial ones cooked up in the City. Between them they all reckon our national output was 0.6% higher in the second quarter than in the three months before and 1.4% bigger than it was a year ago. That's the fastest annual rate of growth since 2011.

Should we be pleased? Absolutely. But I doubt that the chancellor or the Bank of England governor will call themselves satisfied.

Remember the second quarter of 2012 was artificially depressed by the extra Bank Holiday. Looking through that distortion, today's figures suggest that the UK has grown at roughly half its long-term rate in the past year. Output is still 3.3% below its peak at the start of 2008, and average living standards (GDP per head) have even further to go to catch up where they were.

But, you know this. We've been saying it - off and on - for months. Nick Robinson and I said it again on the Today programme this morning.

What is new - or at least different - in these figures is that, for once, most parts of the economy have played a role in this growth, with production and construction each growing alongside the ever-dominant service sector.

I have spoken before about Britain having "the wrong kind of growth". We can't say for sure whether growth in the past three months was more balanced, until the Office for National Statistics brings us a more detailed breakdown of GDP. But there have at least been some encouraging straws in the wind on the exporting side, with exporters reporting rising orders in the British Chambers of Commerce survey that came out earlier this week. The mood among services exporters was especially upbeat.

Is this the start of a more fundamental re-balancing in the economy? I haven't been able to find many in the City who believe that, at a time when investment is still historically weak, and borrowing by consumers is picking up. But at least things in the productive side of the economy have stopped getting any worse.

Once again, in these figures, we see how very differently the past few years have treated different parts of the economy. We may not formally have had a double dip recession between 2011 and 2012, but you can see from the chart that manufacturing and construction had a very pronounced double dip, from which they are only now tentatively recovering.

Graphic

Though services are now nearly back to where they were before the recession, manufacturing is still 10% in the hole, and construction output is more than 15% below where it was.

Taken together, the chancellor's supporters say the numbers give the lie to Ed Balls - and all those who blamed austerity for our slow recovery. If that's true, Mr Osborne's advisers say, why is the economy growing now, despite the continued fiscal squeeze? And why has the domestic side of the economy been doing OK all this time, with the big drag on the economy coming from the rest of the world?

Ed Balls will have his own answer to that. It is certainly a good time for the shadow chancellor to be in America rather than here.

Clearly, events in the eurozone and the rest of the world have made things a lot harder for us. But the Treasury has never denied that fiscal tightening, by itself, will have slowed growth as well. The IMF, for example, said last year that austerity had lowered GDP by 2.5% in the government's first two years in office.

As ever, the answer is not black and white - at least to economists. Even if our politicians are blessed with greater certainty.

To take just one example: in explaining slow growth in the past, both the Bank of England and the Office for Budget Responsibility have tended to emphasise not just the eurozone but the impact on consumers of rising imported energy and food prices. That is certainly an "external factor".

But, some economists would argue that the rise in imported inflation was itself made worse by the low value of the pound, which - in turn - might be at least partly due to the government's determination to rely mainly on the Bank of England printing money to deliver the recovery, while the chancellor got a handle on borrowing.

The truth is we'll never have a definitive explanation for the long delay in Britain's recovery. What we do know, at least until the numbers are revised, is that Britain's economy is growing faster than it was before, and a little bit faster than many expected a few months ago.

To return to where I started - we probably shouldn't be satisfied. But we are allowed to be pleased.

 
Stephanie Flanders, Economics editor Article written by Stephanie Flanders Stephanie Flanders Former economics editor

So it's goodbye from me

After 11 years at the BBC, I'm leaving for a new role in the City.

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  • rate this
    0

    Comment number 365.

    Monetary policy has never been any good at controlling inflation:

    Raising the bank rate reduces h'hold debt and spending, but also restricts businesses from expanding output.

    Raising the bank rate reduces spending as a result of debt, but increases spending as a result of increased returns on savings.

  • rate this
    0

    Comment number 364.

    "Interest should only protect against inflation."

    There is an argument to say that interest itself is a price - the price of credit - which gets passed onto the consumer ultimately.

    It's true that households and businesses should balance their books, but govt doesn't have to.

  • rate this
    0

    Comment number 363.

    It is honest to ask what is growth. As with the events which led to Thatcherism, some people get too much of a good thing.

    Growth has components and some are favoured over others. It is important to balance governments books but there is an ever more impossible equation of returns on savings. And, returns on investment.

    Priceshave to go down. Interest should only protect against inflation.

  • rate this
    0

    Comment number 362.

    Once again we see poorly formed statistics based on the London factor papering over the cracks of the true state of the country. When will we ever learn that the true future of this country is to invest in manufacturing of new technology and engineering.
    The service sector is not a long term fix, and construction is still on it's knees with tenders priced at rates used 10 years ago.

  • rate this
    -1

    Comment number 361.

    The BBC . The mouthpiece of the EU.

  • rate this
    0

    Comment number 360.

    Of course, any improvement in exports will likely be offset by the £10Bn in austerity measures being implemented this year.

  • rate this
    0

    Comment number 359.

    #358
    Yes Nigel.

  • rate this
    -2

    Comment number 358.

    It's EU regulation but some how they keep claiming the EU is good, the is something fundamentally wrong but they are not changing anything. 0.6% is not a-lot. Plus they are closing a Ford plant and it's moving to Turkey because of EU regulation. National dept goes up because they hand billions to the EU. The EU is a robbery and disaster which is why our economy is bad it's linked to national dept.

  • rate this
    0

    Comment number 357.

    We know that hotels, pubs and restaurants did much better in Q2. This could be an early sign of the devaluation bearing fruit, as the lower currency attracts tourism. Other exports will take a little longer to start impacting the economy.

  • rate this
    +2

    Comment number 356.

    As I posted on another thread, the fact that Georgy boy plans to tell the plebs that living standards have risen is all you need to know about statistical manipulations.

  • rate this
    +3

    Comment number 355.

    Sorry...but virtually all of the 'official' growth figures don't reflect the real world...the world I occupy.....ever reducing income, returns on savings and investments..the ever increasing price of almost every thing I need to buy to live. Sorry..my life is different.

  • rate this
    +2

    Comment number 354.

    #352
    Well, in fairness there are a few stats they've come clean over - like Pickles £217million overspend - how dumb must he feel after all that Big Government lecturing and dictating eh?
    And , I suppose the disclosures about G4S and Serco overcharging by tens of millions are a step in the right direction even if they merely confirm the dreadful state of outsourced public services

  • rate this
    +3

    Comment number 353.

    Following on.


    The continued Hot money and zero interest rates are papering over the cracks and market correction is unavoidable. Politicians are hoping not on thier watch and Financiers are sticking their heads in the sand.

    There is a day of reckoning coming and it isn't going to look very pretty and the usual suspects will claim there was no way of knowing it was coming.

  • rate this
    0

    Comment number 352.

    My neighbour punched and police dealt with it by means of "local reolution".This doesn't show on crime figures.

    Hospital managers encouraged to fiddle waiting timefigures etc.

    immigration reportedly down

    so why should I believe the tories rubbish about things are looking up
    lies and stats.

  • rate this
    +2

    Comment number 351.

    @341

    Whilst I would of agreed with you in 2008, now is a very differing environment.

    Whilst raising interest rate will boost spending power for savers. The banks are holding huge amounts of sub prime debt, which will explode. There is also £t in interest rate linked CDS.
    If full disclosure had taken place in the first place, this could of all been allowed for, now the matter has been MUCH worse

  • rate this
    -1

    Comment number 350.

    #349
    You poor thing - shall we ask the government to stop cutbacks - let councils increase rates whenever they fancy, like the of so efficient private sector utilities do?

  • rate this
    +3

    Comment number 349.

    309. Mark

    I will only be satisfied when my wages cover my utility, insurance, food and mortage ect.
    =
    My Council tax is higher than my fuel bills per month, they only empty my bins once a fortnight,call me a customer, but won't let me engage another council's services, and when I complain and ask what I get, the left moan at me for not wanting to pay taxes!

  • rate this
    +1

    Comment number 348.

    The extra bank holiday depressed Q2 2012 artificially? That's too fussy. If you want to factor in such small details for comparison and analysis, you might as well not compare year on year at all, sorry. Q2 2013 was a lot colder than Q2 2012 and that depresses the economy much more than 1 extra bank holiday...Factor that in too then. And we could go on forever...

  • rate this
    +2

    Comment number 347.

    #344
    O - Take your point about who gets hit hardest and why.However,there has been a top rate tax cut and the govt has resolutely avoided actually doing anything about closing the tax gap other than posturing for the media.
    Suerly, the govt, any govt, has a duty to collect the tens of billions of missing taxes at a time like this?

  • rate this
    +3

    Comment number 346.

    @324 "You ignore the fact that we have energy company cartels which do exactly the same, but there is no competition"

    They don't change their prices on the same day - too obvious.
    They also tell us that profit margins for supplying customers is around 2%. No company would run a business like that. I suspect they funnel profits into other parts of the business to make the margins look lower.

 

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