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Surprise lift for UK economy

The UK economy grew by 0.8% in the third quarter of this year, following 1.2% growth in the second quarter. Most analysts had been predicting a growth figure of around 0.4%, so this is obviously good news. But, we need to bear in mind that these are provisional figures and are subject to revision at a later date.

I have written consistently about the dangers of extreme cuts, so have I got it wrong?  Well I sincerely hope so, but I don’t think so. What we really need to do is take a look behind the figures. When we look at the constituent parts of GDP we get a somewhat different picture.

First of all, total service output rose by 0.6%, which was the same as the previous quarter. However, within this, the very important sector of business services and finance grew by 0.5%, compared to 1.0% in the previous quarter. Likewise, total production rose by 0.6% compared with the previous 1%, and within this, manufacturing rose by 1.0% compared to 1.6%.

By contrast construction output rose by 4.0%, which was down from 9.5% in the previous quarter. But, this level of improvement in construction is fairly typical of a recovery from recession.

Is the UK economy now on the right track, or still in danger of becoming derailed?

So are we right to pin our hopes on continued expansion in construction to drive growth forward? The answer to that is ‘no’. Given the decline in the rate of growth of both services and production, and the recent surveys showing a downturn in business sentiment, coupled with the fall in retail sales in August and September, everything in the garden is not rosy.

Yesterday, David Cameron told the CBI that there would be a “forensic, relentless focus on growth” over the coming months. He maintained that private sector innovation and job creation were the essentials in rebuilding the economy. But with falling demand, rising unemployment, a hike in VAT to 20% coming in January and a deteriorating balance of trade, this is very unlikely to happen.

UK growth for 2010 will probably come in at around 1.8% and there is a good chance that growth will be even lower next year. Even if we avoid the dreaded ‘double-dip’ recession, the immediate future for many people does not look promising.

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Posted in Balance of Trade, Consumer Expenditure, economic growth

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