28 Apr 2015

Do GDP figures mean UK economy is still not ‘fixed’?

The economy finally picked up momentum in 2013. But what is worrying for George Osborne about today’s GDP figures is how they suggest that momentum ebbing away over the last year.

There’s no avoiding the fact that today’s growth figures are a disappointment, writes Channel 4 News economics producer Neil Macdonald.

City forecasters were expecting the economy to expand by 0.5 per cent in the first three months of the year. Pessimists thought it might be just 0.4 per cent. In fact, the economy couldn’t manage even that – growing by just 0.3 per cent.

The government might say that at least there’s still some growth – but the problem for the chancellor is that he has a bit of form when it comes to GDP disappointments.

Here are the forecasts for GDP growth for the last four years that the chancellor presented at his first budget back in the heady days of Summer 2010:

  • 2011: 2.3 per cent
  • 2012: 2.8 per cent
  • 2013: 2.9 per cent
  • 2014: 2.7 per cent

And this is what actually happened:

  • 2011: 1.6 per cent
  • 2012: 0.7 per cent
  • 2013: 1.7 per cent
  • 2014: 2.8 per cent

The chancellor hoped we would enjoy robust economic growth throughout his time in office. The average growth rate in the UK economy has been 2.6 per cent a year – Mr Osborne thought he’d get that and more while sorting out the deficit. In fact, the economy has grown slower than hoped in three years out of four.

That slow growth – and the resulting weakness in tax receipts – is the reason why the coalition has been unable to deliver on its plans to shrink the deficit. Government borrowing last year was £87bn when the original plan from Mr Osborne said it would be just £37bn.

The coalition had been hoping these disappointments were behind it. The economy finally picked up momentum in 2013. But what’s worrying about these figures is how they suggest that momentum ebbing away over the last year.

Scant comfort

The truth is that these numbers may well get revised upwards in future months – though that will be scant comfort to Mr Osborne if he’s sitting on the opposition benches by then.

The big weakness in the economy was construction where output fell by 1.6 per cent – but that’s a volatile sector where bad figures now could be made up later in the year. And the service sector – the largest part of the economy by far – is still chugging away reliably.

But these figures suggest – six years after the recession officially ended – the British economy is still by no means fixed.

The chancellor has blamed the past poor performance of the economy on the never-ending crisis in the eurozone. And Greece has been worrying markets again this year, since the anti-austerity Syriza came to power – though it’s unclear whether that’s the reason for the slowdown in growth here.