25 Jul 2014

Sun out for Osborne as UK economy emerges from downturn

The UK economy grew by 0.8 per cent in the second quarter and has now recovered the ground lost since the downturn began in 2008, according to official figures released this morning.

Britain has finally emerged from its worst post-war downturn after growth of 0.8 per cent in the second quarter of 2014 took the size of the economy above its pre-recession peak. The performance left the UK’s gross domestic product (GDP) 0.2 per cent ahead of its level at the start of 2008, the Office for National Statistics (ONS) said.

It marks the end of a period when GDP slumped to 7.2 per cent below its pre-recession levels by the middle of 2009. The stuttering recovery did not take flight until last year when growth began to accelerate. But Britain is now predicted to be the fastest growing major world economy in 2014.

On Tuesday the International Monetary Fund (IMF) raised its GDP forecast for the fourth time in a row to 3.2 per cent.

Commenting on the figures, Chancellor George Osborne said: “Thanks to the hard work of the British people, today we reach a major milestone in our long-term economic plan.”

Two narratives of economic recovery

Today’s figures showed that GDP was 3.1 per cent higher in the second quarter compared with the same period a year ago – the highest such year-on-year increase since the last quarter of 2007.

Confirmation that GDP has returned to pre-recession levels is likely to be seized upon by the Coalition as a sign that their economic policies are working. However, Labour critics point to evidence that it is not yet filtering through to ordinary households as real terms pay is still falling.

Shadow chancellor Ed Balls criticised the coalition’s record in an article for the Guardian. He wrote: “Not only is it two years later than the Chancellor’s original plan said, and three years after the US reached the same point, it’s also the case that GDP per head won’t recover to where it was for around another three years – in other words, a lost decade for living standards.

“So while David Cameron and George Osborne complacently claim the economy is now fixed, most people are worse off.”

Latest figures show while employment levels are improving strongly, pay growth has fallen to just 0.3 per cent, lagging well behind inflation at 1.9 per cent.

The new GDP figures are also likely to be picked over for their implications for the timing of an interest rate rise.

Forecasts of a hike have been brought forward by signs of burgeoning recovery. But Alan Clarke of Scotiabank said a lower than expected quarterly growth figure was likely to lessen expectations of this happening by the end of this year.