26 Oct 2010

UK economic growth better than expected

Business Editor

UK economic growth in the third quarter grew by a better than expected 0.8 per cent. Our Economics Editor, Faisal Islam says it’s the best day of news for George Osborne since he became Chancellor.

The rise in gross domestic product (GDP) in the three months to the end of September was significantly less than the 1.2 per cent surge earlier this year, but double the growth expected by most analysts.

Economic growth over the past six months has now hit 2 per cent, which is the fastest pace of expansion seen over two consecutive quarters for 10 years, according to the Office for National Statistics (ONS).

“This gives me confidence that although global economic conditions remain choppy, a steady recovery is under way.” Chancellor George Osborne

The ONS said year-on-year growth has recovered to levels seen before the recession, reaching 2.8 per cent in the third quarter – the highest annual rate of expansion since 2007.

The ONS data revealed a surge in construction output helped drive growth in GDP, growing by 4 per cent during the third quarter and contributing 0.2 per cent of the overall 0.8 per cent expansion.

Output in the key services sector – accounting for three quarters of the economy – was 0.6 per cent, while industrial production also grew by 0.6 per cent.

Economic problems over?
But not everyone is convinced the danger of a double dip recession is over.

Dr Neil Blake, Director of Economic Analysis with the consultancy Oxford Economics is sceptical that the better than expected figures are truly a positive sign.

"Double dip is still a risk; these figures are very reliant on growth in the construction industry," he told Channel 4 News.

"Finance and business services and manufacturing have actually weakened. Government services such as education and health are strong and that won't continue, quite the reverse.

"Although the data for the construction industry seems strong, it remains to be seen how reliable the construction figures are.

"That is because this year the ONS changed the way it gathers this data and there is insufficient data available to be able to properly seasonally adjust the figures to get an accurate guide to real growth in this area."

Sterling boosted
The figures sparked a boost in the value of the pound, with sterling growing against both the dollar and the Euro.

The Chancellor, George Osborne, said the third quarter figures were the best for that period since 1999.

“Just like the second quarter, the growth is broadly based and the lion’s share is coming from the private sector,” he said.

“The ONS believes that the underlying growth in the third quarter was ‘broadly similar’ to the strong second quarter. This gives me confidence that although global economic conditions remain choppy, a steady recovery is under way.”

While the figures are only a preliminary estimate and may be subject to change, the initial growth figures are likely to give a boost to Government deficit-busting plans.

‘Economic dynamism’
Yesterday the Prime Minister urged business leaders to invest in British innovation and create private sector jobs, insisting his policies would create a “new economic dynamism”.

Speaking to CBI delegates David Cameron promised a “relentless focus on growth” to help fill the hole left by the coalition’s austerity measures, expected to cost 490,000 public sector jobs.

Labour leader Ed Miliband accused the Government of taking a “big gamble” by pushing through deep cuts that would destroy hundreds of thousands of jobs and act as a drag on UK plc.

Concerns have been raised over the pace of cuts to the public sector unveiled by the Chancellor George Osborne last week.

At the weekend, Britain’s new Nobel Prize winning economist, Professor Christopher Pissarides, warned that the Government was taking “unnecessary risks” when the economy remained weak.

“I fear for 2011,” he said. “I think we are going to have quite a good quarter – the next quarter should be reasonably good – as it normally is. But we have VAT going up next year – in January. You have got the impact of the government’s cuts starting to kick in.

“They only promised to cut about £6billion immediately, but next year the impact will kick in there. And the government itself is one-fifth of the economy – it orders goods and services which make up one-fifth of the economy.”

Super-George to the rescue
A Conservative Chancellor comes to power and the economy starts to soar away, writes Economics Editor Faisal Islam.

Add in the fact that Standard & Poor's has taken the UK out of the AAA credit rating relegation zone and you pretty much have the best day of news for George Osborne since he took up office as Chancellor.

The economy is now growing faster out of recession than it did after the 1980s recession, but it is all a bit of a shock because in most of the business surveys we are seeing far more pessimism than this.

Of course it would be foolish for the Chancellor to claim too much credit for the stellar 0.8 per cent rate of growth of GDP between June and September. That number probably has more to do with the legacy of the previous government's policies and the Bank of England's low interest rates and magic money creation scheme.

Read more

Credit rating
The GDP figures were released as the Government received some welcome news to Britain’s credit rating.

After the Coalition unveiled its biggest spending cuts since the Second World War, Standard & Poor restored its credit outlook for the UK from “negative to stable”.

S&P, which has a AAA rating on British government debt had warned last year that the UK was at risk of downgrade.

‘Economic dynamism’
Yesterday the Prime Minister urged business leaders to invest in British innovation and create private sector jobs, insisting his policies would create a “new economic dynamism”.

Speaking to CBI delegates David Cameron promised a “relentless focus on growth” to help fill the hole left by the coalition’s austerity measures, expected to cost 490,000 public sector jobs.

Labour leader Ed Miliband accused the Government of taking a “big gamble” by pushing through deep cuts that would destroy hundreds of thousands of jobs and act as a drag on UK plc.

Concerns have been raised over the pace of cuts to the public sector unveiled by the Chancellor George Osborne last week.

At the weekend, Britain’s new Nobel Prize winning economist, Professor Christopher Pissarides, warned that the Government was taking “unnecessary risks” when the economy remained weak.

But in an interview today with Channel 4 News, Martin Burvill, Group Vice-President of global communications company Verizon, said he felt very optimistic about the future. Watch his interview in full below.