GDP: a balanced, strong recovery (so far)

The economy is now growing at comfortably the fastest annual rate since late 2007. Though the latest quarterly growth number was a touch lower than expected (0.8% rather than 0.9%), that makes little odds (and, as we’ll come onto in a moment, these initial estimates are usually lowballs anyway).

Moreover, the growth is pretty well-balanced. As you can see from this Goldman Sachs table, most of the major sectors grew pretty strongly. The strongest of all was distribution/hotels, which roughly translates as retail, but manufacturing was also very strong, with growth of 1.3%.

Admittedly, though, because the UK economy is so much more dependent on services than manufacturing, the actual contribution to that 0.8% growth rate from production (the sector that includes manufacturing) was still relatively small, at just over 0.1 percentage points.

And it will take quite some time before the size of the production or construction sectors are anywhere near what they were before the crisis.

Now, one should bear in mind that these first GDP estimates are extremely rough and provisional. The ONS only has about 40% of the necessary information at the time of their release (you can see more about the process of how the number gets put together in the video here). But, the Chancellor will probably be relieved to hear, history has tended to show that the ONS’s initial estimates often turn out to be lowballs.

For instance, consider the recession of the early 1990s. The ONS initially thought that the UK economy took a full 15 quarters to regain its pre-crisis peak. Many years later it totally revised its estimate of that event; the rewritten story showed that the economy regained its pre-crisis size within 10 quarters.

That said, even if there were a similar level of pessimism in the initial numbers this time around, the scale of the recent depression (the period during which the economy has been smaller than before the crisis) is far greater than anything in recent history.