UK: Economy set to notch up improved second quarter growth in GDP
- Credit: PA
The UK economy is expected to notch up an improved quarter of growth when official figures are published later today, adding to hopes of a sustained recovery.
A widely expected rise of around 0.6% in gross domestic product (GDP) would double the previous increase of 0.3%, building on national cheer fuelled by the birth of the royal baby and the summer heatwave.
The figures published by the Office for National Statistics look likely to banish the chilly mood of three months ago when it was feared that the UK could enter an unprecedented triple-dip recession - though there remain warnings that the recovery is fragile.
A 0.6% rise would be the best performance excluding special events since the third quarter of 2011. A 0.7% rise in the third quarter last year is attributed to a bounce-back from a Jubilee slump in output.
The prospects of the UK entering the sunlit uplands of recovery seem to have steadily increased since the previous GDP data in April this year, when the 0.3% increase in the first quarter was announced.
Unofficial surveys published since then have suggested continued improvement, while revisions to ONS data revealed that the double-dip recession from 2011 to 2012 never happened.
Yet the revisions turned out to be double-edged, confirming that the initial recession following the financial crisis was far worse than first feared. It meant the economy was still 3.9% below its pre-crisis peak - with the gap previously thought to be 2.6%.
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Doubts also remain about the strength of the recovery, with fears over risks posed by the turbulent eurozone and the consumer-led nature of the economy’s progress.
Officials at the International Monetary Fund (IMF) have added to the ambivalence, raising their forecast for annual growth from 0.6% to 0.9%, but later issuing a gloomy analysis of the UK’s prospects.
In a recent report, the IMF said the recovery remained “slow and fragile” with output expected to remain well below par for an extended period, and some of its economists suggesting the sluggish pace of growth could undermine the coalition’s deficit-slashing policies.
Meanwhile, the Bank of England’s first significant intervention under new governor Mark Carney saw policymakers apparently taking a less rosy view of the outlook than some in the City.
The decision to reassure markets that interest rates would remain low for some time to support the ailing economy - in the face of market predictions that they would go up sooner - was seen by some as a corrective to misplaced optimism.
In a rare note issued after this month’s meeting of the Monetary Policy Committee, the Bank said: “There have been further signs that a recovery is in train, although it remains weak by historical standards and a degree of slack is expected to persist for some time.”
There are also concerns over the shape of the recovery. The powerhouse services sector, representing three-quarters of the economy, is leading the way, while optimism is also increasing in a construction sector boosted by Government schemes to stimulate lending and home buying.
But manufacturing is yet to demonstrate any sustained progress, with latest official figures showing output fell 0.8% in June - though it looks to have picked up slightly over the whole quarter.
Shadow chancellor Ed Balls said he expected today’s figures to show that the economy is showing “welcome and long-overdue” signs of growth.
But he warned that most ordinary familes will not feel the benefit of the recovery in GDP, because of wages lagging behind inflation.
Writing on the Huffington Post website, Mr Balls said yesterday: “Figures tomorrow will show the UK economy is finally growing again - something that is both welcome and long overdue - but most families are not seeing any recovery in their living standards.
“Wages after inflation are falling month by month - down by over £1,300 a year since David Cameron’s Government came to power.”
Mr Balls was in the USA yesterday for the launch of the Transatlantic Commission on Inclusive Prosperity with Bill Clinton’s former Treasury secretary Larry Summers.
The shadow chancellor said: “There are clearly lessons that Britain can learn from America, where President Obama has used fiscal policy to secure rather than strangle economic recovery.
“Since the autumn of 2010, the US has grown a staggering four times faster than the UK. The US economy has more than recovered all the output lost after the global financial crisis, but three years of stagnation in Britain means our economy remains over 3% below its pre-crisis peak.”
Mr Balls added: “We also face a shared challenge of ensuring that economic growth is both strengthened and fairly shared. In the US, policymakers are rightly debating why the American ‘middle class’ is still not feeling the full benefit of their recovery.
“We need a strong recovery that everybody can benefit from - a recovery made by the many, not just a few at the top. That means government action now alongside long-term reforms. It’s a challenge for all developed economies around the world, but it’s one we must rise to. The Commission we launch today will help us do so.”