GDP: finally, some good news
Let’s get the provisos out of the way first.
One quarter’s numbers do not a recovery make. The UK economy is still far from what anyone would regard as healthy. National income is still more than 2.5% below where it was back at the start of 2008. For that matter, it’s more than 5% smaller than the Office for Budget Responsibility predicted when George Osborne came into office.
And there is scant evidence of the rebalancing the Chancellor has long been predicting: any recent growth there has been was almost entirely in the services sector, while both manufacturing and construction (the sectors which actually make things) are, respectively, 14% and 19% weaker where they were in 2008.
All the same, don’t underestimate the significance of this moment. A negative GDP figure today – or even a slightly positive one – would have left the Chancellor with little ammunition left to defend himself. Over the past few weeks he’s been battered by the International Monetary Fund, embarrassed by the Excel scandal that’s upended the Reinhart & Rogoff research he used to help justify his austerity policies and disappointed by the fact that the public finances barely recovered at all last year – in underlying terms, at least. Had today’s figure been negative it would have made it far more likely that the IMF would have delivered a withering verdict of the UK economy in its annual survey of the country next month. The Chancellor would have gone into the spending review a weakened figure.
Today’s 0.3% doesn’t change everything but it does remind us that the economy may not be as much of a basket case as many people had assumed. Yes, growth is still unbalanced, but part of the explanation for disappointing exports numbers is the eurozone’s weakness. From hereon the news may get better. There is a decent chance that in the coming months the ONS reconsiders the last couple of years’ growth figures potentially revising away the double-dip recession.
In other words, in a few months’ time it may well transpire that – far from there being a triple-dip recession, there may never have been a double-dip in the first place.
Prospects for the rest of the year look brighter than they have been for a while. Indeed, the first quarter’s growth probably understates growth a touch, because the poor spring weather depressed activity. And, barring some disaster (and of course there have been one or two of them recently) we can expect the economy to continue growing in the coming months. Unemployment figures aren’t great, but aren’t disastrous, and the housing market is looking a little bit healthier than for a while.
Which brings us to our final (and for my money, most worrying) point. A lot of influential people within British economics are deeply worried about the new policies the Chancellor has unveiled to try to get the household sector spending again. In particular, they view Help to Buy, the Government’s new mortgage guarantee scheme, as a potentially dangerous effort both to generate another housing bubble, and to shift some of the risk associated with it back onto the Government’s books. I asked the Chancellor about this in our interview today. His response: “We’ve had a housing bust. I want to get back to a normal level where first time buyers can afford a home. That’s not a housing boom.”
Those living in areas of the country (London and the South East) with home prices higher than they were at the start of the crisis may raise their eyebrows at the Chancellor classifying this as a full-scale housing bust. Others will express concern that pumping extra impetus into the property market, which is part of what led to the domestic economic crisis in the first place, seems a touch odd.
But for the time being let’s revel in the fact that whereas much of Europe remains mired in recession, Britain isn’t.