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| UK economy: reasons to be cheerful … or glum | UK economy: reasons to be cheerful … or glum |
| (2 months later) | |
| Fastest growth for nearly two years | Fastest growth for nearly two years |
| It may have been bang in line with experts' forecasts but 0.6% growth is the strongest performance the economy has managed since the third quarter of 2011 – barring the Olympic bounce last summer. Treasury officials point out how much things have changed over the past three months. When the first-quarter growth numbers were released there were fears that the UK had slumped back into recession, following a 0.2% decline in the final quarter of 2012. Instead, two successive quarters of growth will mean that Ed Balls will have to retire his "flatlining" hand gesture in the Commons | It may have been bang in line with experts' forecasts but 0.6% growth is the strongest performance the economy has managed since the third quarter of 2011 – barring the Olympic bounce last summer. Treasury officials point out how much things have changed over the past three months. When the first-quarter growth numbers were released there were fears that the UK had slumped back into recession, following a 0.2% decline in the final quarter of 2012. Instead, two successive quarters of growth will mean that Ed Balls will have to retire his "flatlining" hand gesture in the Commons |
| Expansion across the board | Expansion across the board |
| For the first time since the third quarter of 2010, all the main sectors of the economy – services, industry and construction – have showed some growth. This reinforces George Osborne's argument that everyone will benefit from the recovery. It might not mark the hoped-for rebalancing, but it means that construction and manufacturing, both of which have struggled over the past year, are no longer a drag upon the economy | For the first time since the third quarter of 2010, all the main sectors of the economy – services, industry and construction – have showed some growth. This reinforces George Osborne's argument that everyone will benefit from the recovery. It might not mark the hoped-for rebalancing, but it means that construction and manufacturing, both of which have struggled over the past year, are no longer a drag upon the economy |
| Bank of England won't spoil the party | Bank of England won't spoil the party |
| Even if a 0.6% expansion of gross domestic product is strong enough to stay the Bank of England's hand for the time being, higher interest rates are a long way off. The Bank's new governor, Mark Carney (left), has made it clear that he has no intention of putting the brakes on until the UK has reached what he calls escape velocity. Financial markets are not expecting rates to go up until at least 2016. That should make companies and homeowners feel more confident about spending, and in turn, help cement the recovery further | Even if a 0.6% expansion of gross domestic product is strong enough to stay the Bank of England's hand for the time being, higher interest rates are a long way off. The Bank's new governor, Mark Carney (left), has made it clear that he has no intention of putting the brakes on until the UK has reached what he calls escape velocity. Financial markets are not expecting rates to go up until at least 2016. That should make companies and homeowners feel more confident about spending, and in turn, help cement the recovery further |
| Housing market on the up | Housing market on the up |
| After a long drought, the Treasury's Funding for Lending Scheme, which got going a year ago, has helped to open up the mortgage taps, getting the housing market moving again. The latest Nationwide numbers suggest that June house prices were up 1.9% on a year earlier, while in May mortgage approvals were at their highest level for three and a half years. In property-mad Britain, rising prices boost consumer confidence, and the effects are then felt in other industries (buyers rush to refurbish their homes) | After a long drought, the Treasury's Funding for Lending Scheme, which got going a year ago, has helped to open up the mortgage taps, getting the housing market moving again. The latest Nationwide numbers suggest that June house prices were up 1.9% on a year earlier, while in May mortgage approvals were at their highest level for three and a half years. In property-mad Britain, rising prices boost consumer confidence, and the effects are then felt in other industries (buyers rush to refurbish their homes) |
| Unemployment dropping | Unemployment dropping |
| The latest jobless figures, in June, show the number of people claiming unemployment benefit has been falling at its fastest pace in three years. While there are plenty of caveats – about the number of "under-employed" people stuck in part-time jobs, on insecure contracts or on poverty pay – the labour market does appear to be improving. The hope is that falling unemployment will eventually start to drive up long-stagnant wages as employers are forced to compete for staff | The latest jobless figures, in June, show the number of people claiming unemployment benefit has been falling at its fastest pace in three years. While there are plenty of caveats – about the number of "under-employed" people stuck in part-time jobs, on insecure contracts or on poverty pay – the labour market does appear to be improving. The hope is that falling unemployment will eventually start to drive up long-stagnant wages as employers are forced to compete for staff |
| And reasons to be glum ... | And reasons to be glum ... |
| Recovery still slow | Recovery still slow |
| A couple of quarters' growth might be welcome, but the Office for National Statistics has pointed out that GDP is still 3.3% below its peak of the first three months of 2008 – and that was before the UK plunged into recession. That makes this recovery by far the weakest emergence from a recession in a century. And it means that it will be a long time before the economy makes up the ground that has been lost | A couple of quarters' growth might be welcome, but the Office for National Statistics has pointed out that GDP is still 3.3% below its peak of the first three months of 2008 – and that was before the UK plunged into recession. That makes this recovery by far the weakest emergence from a recession in a century. And it means that it will be a long time before the economy makes up the ground that has been lost |
| Living standards | Living standards |
| While unemployment did not rise as far, or as fast, as many economists feared during the depths of the recession, firms held on to staff by forcing them to agree to wage freezes, or even to outright cuts in their pay packets. The Institute for Fiscal Studies has argued that, in real terms, the past five years have brought workers the deepest pay cuts of the modern age – and economists fear that if living standards fail to pick up, the recovery will stall | While unemployment did not rise as far, or as fast, as many economists feared during the depths of the recession, firms held on to staff by forcing them to agree to wage freezes, or even to outright cuts in their pay packets. The Institute for Fiscal Studies has argued that, in real terms, the past five years have brought workers the deepest pay cuts of the modern age – and economists fear that if living standards fail to pick up, the recovery will stall |
| London and south-east effect | London and south-east effect |
| Another type of rebalancing hoped for by the government has been geographical – spreading the benefits of economic success beyond the capital. But government spending cuts are hitting hard in the Midlands and the north, while it is London's skyline that is thick with cranes. Property prices in many cities remain well below the level of five years ago. Nationwide data suggest the gap between house prices in the capital and the rest of the country is the widest on record | Another type of rebalancing hoped for by the government has been geographical – spreading the benefits of economic success beyond the capital. But government spending cuts are hitting hard in the Midlands and the north, while it is London's skyline that is thick with cranes. Property prices in many cities remain well below the level of five years ago. Nationwide data suggest the gap between house prices in the capital and the rest of the country is the widest on record |
| Wrong sort of growth | Wrong sort of growth |
| The coalition has been hoping to rebalance the economy away from the unsustainable, out-of-kilter growth of the early 2000s and towards manufacturing and exports. Yet the UK's trade deficit has essentially been flat for the past year, at just over £2bn a month, while retail spending has jumped. Manufacturing output remains 13.9% below its pre-recession peak. Similarly, construction output expanded in the second quarter – but is still 17.3% lower than before the recession | The coalition has been hoping to rebalance the economy away from the unsustainable, out-of-kilter growth of the early 2000s and towards manufacturing and exports. Yet the UK's trade deficit has essentially been flat for the past year, at just over £2bn a month, while retail spending has jumped. Manufacturing output remains 13.9% below its pre-recession peak. Similarly, construction output expanded in the second quarter – but is still 17.3% lower than before the recession |
| Fragility of recovery | Fragility of recovery |
| An upturn based on rising house prices, and consumers dipping into their savings (the savings ratio dropped sharply in the first quarter) will rapidly become unsustainable unless these factors spark rising business investment, then higher wages. While the eurozone has been calm for a few months, the single currency crisis could flare up again on any of several fronts. And when the Federal Reserve starts to withdraw its massive economic stimulus programme, that could also prompt a renewed bout of market turmoil, potentially driving up borrowing costs and choking off growth | An upturn based on rising house prices, and consumers dipping into their savings (the savings ratio dropped sharply in the first quarter) will rapidly become unsustainable unless these factors spark rising business investment, then higher wages. While the eurozone has been calm for a few months, the single currency crisis could flare up again on any of several fronts. And when the Federal Reserve starts to withdraw its massive economic stimulus programme, that could also prompt a renewed bout of market turmoil, potentially driving up borrowing costs and choking off growth |
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