25 Oct 2013

Osborne finally achieves economic momentum

So the chancellor proclaimed that Britain was on “the path to prosperity” this morning as he investigated the charms of weaving and spinning at a factory in Leeds.

His rhetoric is an incremental step up from having “turned the corner” last month. At this rate by 1 November expect we’ll be in the sunlit uplands of full-scale economic nirvana. For now, George Osborne was attempting to rein in the euphoria. But he must be mighty pleased.

Because today’s figure means one thing: momentum. It is not that it is the highest quarterly growth figure under his chancellorship. It is the fact that for the first time under this government – in fact, for the first time since the boom six years ago – we have had consecutive quarters of proper growth (above 0.5 per cent).

George Osborne Visits Hainsworth Factory After GDP Results


This, on the one, hand shines a light on just how shoddy the last few years have been. On the other, it starts to offer the tanatalising possibility that growth, confidence and business investment trigger a virtuous, self-reinforcing spiral. Key to this will be businesses starting to deploy the hoarded cash piles.

The absence of a serious euro crisis is vitally important. But the Carney effect must be mentioned here. Some economists thought today’s number would be very very strong. It had looked as if today’s figure could be a boom time figure of 1+ per cent growth, on the back of important surveys of business confidence.

Actual real economic data have been a little more sober, leading to today’s figure 0.8 per cent, pretty much where it was in q2 and pretty much “par” growth for the UK economy over the past couple of decades (though as Europe Economics‘ Andrew Lilico has pointed out, ex-oil it was 1 per cent growth). This was driven by the services sector, responsible for 0.6 per cent of the 0.8 per cent.

That businesses are more confident than the actual economic reality is good news for Mark Carney, and so Osborne. Carney’s strategy of using forward guidance to excite the animal spirits of business investment since his arrival at the beginning of this quarter appears to be working in the way it was intended: as an exercise in mass applied psychology, even if it is not quite working as intended in the financial markets.

But momentum is the key word. The first proper back-to-back quarterly growth since the crisis. Critics will argue it has been a long time coming. Osborne’s record as chancellor is still one of almost no growth for three years, followed by half a year of par growth. But come it has.

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5 reader comments

  1. Philip says:

    How much of this was generated by increased consumer spending, as opposed to investment & increased manufacturing output? have we rebalanced the economy or is this just a re-run of what happened before 2008? In other words, is this a sustainable basis for future economic prosperity or “back to the future”?

  2. Warren says:

    How out of touch is George Osborne and Cameron as if a 0.8% rise in the economy equates to us all I work full time but am still struggling, This is not being reflected to everyone in the UK only for the wealthy few middle – upper class bankers (or should say W******), I hate this government what they are doing to the needy and topping up the wealthy is it about time we went back to 1649 and had a civil war with the roundheads being the working class / and the strugglers and the cavaliers being the rich and wealthy and the wa***** oops the bankers. Bring it on, all the energy companies should be banned and it should go back to being run by the state and by the general public, bring in socialism again.

  3. Philip Edwards says:


    That’s not what this guy says: http://www.huffingtonpost.co.uk/2013/10/25/alessio-rastani_n_4162423.html?icid=maing-grid7%7Cukt3%7Cdl1%7Csec1_lnk2%26pLid%3D218601

    Every day it looks more and more that Karl Marx was indeed absolutely right. This time, though, there is no World War or Cold War to delay the full affects…….Well, not unless the Yanks decide to invade someone. Again.

  4. Andrew Dundas says:

    At last the “Carney effect” bought at a cost of a million quid a year by Osborne has reversed “Plan A” and gone back to policy in place up to June 2010. That was when Osborne introduced the entirely unnecessary austerity plan that has caused so much misery.
    Right now, the real blame for the crisis is being allocated to US banks as JP Morgan Chase and probably many others are arraigned for their gross deceptions in selling dud mortgage bonds to US and UK customers. PPI selling is small beer in comparison with what Wall St did to the world.
    Oh, and Pres George W Bush who denied UK government warnings that no-one was supervising the Credit Rating agencies who endorsed those crooked bonds. It was criminality in Wall St that brought down nations. That and foolish governments and an equally foolish Congress that have imposed austerity policies. In the UK that was compounded by an excessive devaluations that certainly has cut the value of the “pound-in-your-pocket”.
    Which is why middle income folks are being squeezed so hard, and wealthier folks given tax hand-outs such as the cut in Corporation Tax from 28% down to 23% and set to go lower still.
    Remember: Pollonious (as in Hamlet) was a foolish twot! His advice “ne’er a borrower nor a lender be” was very bad advise. Not to be followed by sensible people.
    Osborne is today’s Pollonious. Carney’s job is to rescue us from his foolish notions.

  5. Charles Jurcich says:

    With growth set to slow in the EU, and US, and a rise in the £:$, I expect qtr4 to surprise on the downside with slow exports and constant growth in imports.

    It could even be quite a severe slowdown with, say, 0.2% growth in qtr4.

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