Manufacturing is GDP star performer

 
Nissan car plant worker in Sunderland Will a stronger manufacturing sector really help rebalance the economy?

GDP figures are like "Match of the Day" - recorded highlights of what's already happened.

In fact, it's worse than that: the publication of figures for national output every three months is like watching recorded highlights on a faulty television, that shows only three-quarters of the action and sometimes misses what's really been going on.

That said, they are certainly a very worthwhile measure of economic progress, even if these days, there is a growing consensus that they are not the be-all and end-all.

And the big simple story of the latest figures is not contentious: the economic recovery is picking up a bit of momentum.

So in the three months to the end of March, GDP increased by 0.8%, compared with 0.7% in the final quarter of last year.

This is a bit slower than the 0.9% the City expected and the 1% the Bank of England was predicting at the time of the last meeting of its Monetary Policy Committee.

But the shortfall against expectations is less significant than the direction of travel, which remains positive.

On an annualised basis, the economy is growing at a rate of 3.1% - which is back to the kind of growth rates the UK enjoyed before it all went splat in 2008.

As for contributors to the continued recovery, it is inevitable that services - representing three-quarters of the economy - are the driver.

The output of the service industries rose 0.9%, which in turn contributed 0.7 percentage points of the 0.8% increase (or most of it).

But the current star of the UK's economic performance is the small manufacturing sector (roughly a tenth of the economy) - whose output jumped 1.3% and is growing at an annual rate of 3.4%.

The government's longed-for and fabled rebalancing of the economy - towards making things - may at last be happening.

All that said, the economy is still 0.6% smaller than it was at its peak size, before the crash, in the first quarter of 2008 (which of course implies that, barring a calamity, I will be telling you in three months that the UK has at last regenerated all the income wiped out by the Great Recession).

And only the service sector is actually bigger than it was six years ago (2% bigger in fact).

Also, as recent research by the Office for National Statistics shows, if GDP is divided by our population, we are still quite a lot poorer - because lacklustre growth has been accompanied by a rising population.

At the end of last year, GDP per head was still more than 6% below where it was in 2007 - and GDP per capita will still be more than 5% smaller than before the deluge, even after these latest positive figures.

This is what you might call the UKIP paradox.

On the one hand, our rising population is one reason why our economic performance in gross terms is better than some other developed economies: immigrants coming here, working cheaply, and buying stuff stimulates output.

But economic growth that leaves indigenous citizens typically only a bit better off isn't the most popular form of growth.

As for our national obsession, possibly more pervasive than handwringing about the plight of association football - to wit, when will interest rates go up - the latest GDP figures perhaps indicate, as I mentioned recently, that the timing of the first tiny rise may be deferred a bit.

How so? Well, it is because the good or bad news - depending on whether you are borrower or saver - is that the economy is growing a touch slower than the Bank of England had been expecting.

But these are fine judgements. And more relevant than the fuzzy pictures shown in the GDP announcement will be the finer detail available in coming weeks of whether the labour market shows signs of tightening in a way that could stoke inflation.

UPDATE 10:40

I should have mentioned that consumption and shopping appears to have spurred service-sector performance - with the output of distribution, hotels and restaurants (or shopping and leisure) 1.5% higher in the quarter, and a remarkable 4.9% higher year-on-year.

So the cherished rebalancing of the economy has some way to go (ahem).

We are still more a nation of shoppers than makers, and we may be losing the savings habit we acquired after the Crash.

We are not turning German.

 
Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this
    +3

    Comment number 49.

    @40.Lord Haw Haw

    Destruction of manufacturing, and then the outsourcing of the service sector should be blamed on a whole raft of non-trivial, interconnected, partially coupled factors, including but not limited to:
    Destructive unions
    Globalisation
    The EU
    Bad import/export legislation
    Bad tax law

  • rate this
    +2

    Comment number 48.

    I agree with two previous comments: on measuring outsourcing employment in general and particularly in Government, Employees in Capita, Serco, and G4S paid for by the tax payer are in the 'wider' public sector

  • rate this
    -3

    Comment number 47.

    Why do we cheer on manufacturing? Economic growth through an increase in low paid, manual labour?

    Looks like our government is succeeding in making our workers as competitive as Chinese workers. Should we be proud of that "progress"?

  • rate this
    -2

    Comment number 46.

    It's impossible to "fix" the economy without restraining the cost of the public sector. You can't just wish away a £100 billion annual deficit so I don't think it fair to blame the "nasty party". In fact I'm surprised that, in the circumstances, so many jobs are being created, just need less of them to be taken by immigrants.

  • rate this
    -2

    Comment number 45.

    " the publication of figures for national output every three months is like watching recorded highlights on a faulty television, that shows only three-quarters of the action and sometimes misses what's really been going on."

    A euphemism for propaganda perhaps?

    A few rich people are doing very nicely thank you very much.
    The majority are still on low pay zero hours & living hand to mouth.

  • rate this
    +1

    Comment number 44.

    "This is what you might call the UKIP paradox."
    Surely we have had an influx of the wrong type of immigrants.
    Those from Eastern Europe send much of their income back to their home country, so sucking money out of the economy. They live frugally in the UK. What evidence is there that our faster rate of growth in GDP is as a result of immigration, rather than it having been an anchor to growth?

  • rate this
    -9

    Comment number 43.

    Reverse anything the Office of Tory Stats says and there is your real picture.

  • rate this
    0

    Comment number 42.

    'Also, as recent research by the Office for National Statistics shows, if GDP is divided by our population, we are still quite a lot poorer - because lacklustre growth has been accompanied by a rising population.'

    The government would have it immigration, raising the population, is good.

  • rate this
    +2

    Comment number 41.

    You'd think Labour would be pleased that the economy is improving - but are they ? No. And what does that show you ? It shows that the Labour party is really just concerned about what's good for it and not about what's good for the country.

    Labour would rather have a failing economy because it increases their chances at the next General Election.

  • rate this
    0

    Comment number 40.

    @32Claude.

    I think you will find that the best way to drive down the cost of labour is to lay waste to the industries that make use of most of it. Then move the economy to a service economy, followed by moving service jobs offshore. Blaming "imported people" is rather short sighted. Think about greedy capitalism and exporting jobs, there is your real culprit.

  • rate this
    -2

    Comment number 39.

    Another day, another announcement from the Ministry Of Truth.

    Until "growth" starts to positively affect areas outside of London and The South East, then we can celebrate.

    Whatever happened to One Nation politics ?

  • rate this
    -1

    Comment number 38.

    "But economic growth that leaves indigenous citizens typically only a bit better off isn't the most popular form of growth."

    It is very popular with Georgie Boy and his rich cronies. They are certainly not affected by austerity !.

  • rate this
    -6

    Comment number 37.

    Labour will still win the 2015 general election. Go figure!

  • Comment number 36.

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

  • rate this
    -1

    Comment number 35.

    32. Sound Doctor

    "It was about driving down the cost of the working mans only saleable commodity. His labour"

    It was about nasty party driving down labour supporters support
    Northern towns, Public Services, Benefits, trashing economy

    --

    I think you'll find by far the largest factor in driving down the working man's wages was to import 2 million plus people.

    PS I'm from a "Northern town"

  • rate this
    -6

    Comment number 34.

    And they have destroyed the lives of millions of their fellow countrymen for this???? To say nothing of the millions of little brainwashed drones to come.

  • rate this
    +28

    Comment number 33.

    But economic growth that leaves indigenous citizens typically only a bit better off isn't the most popular form of growth.

    If the polls are anything to go by the major parties are going to find out just how unpopular they are.

    The gulf between what GDP purports to show and Reality has never been wider, people no longer believe the figures .

  • Comment number 32.

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

  • Comment number 31.

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

  • rate this
    +1

    Comment number 30.

    18.Cheddy - economy isn't a democracy, you don't get equal share of the 'dividends', but so long as we keep growing everyone will feel the benefit.



    You could call this 'Trickle down economics'. We all know how well proven that theory is.

 

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