UK economy finally above pre-crisis peak, as GDP rises by 0.8% in Q2

Live coverage of the latest GDP data, showing that the UK economy is, at long last, larger than in 2008 as it grew by 0.8% in April-June quarter. But on a per capita basis, GDP is still below the peak. Service sector surged, while construction shrank…

 


Powered by Guardian.co.ukThis article titled “UK economy finally above pre-crisis peak, as GDP rises by 0.8% in Q2 – business live” was written by Graeme Wearden, for theguardian.com on Friday 25th July 2014 12.05 UTC

The first quarter of 2008 was also the time in which Northern Rock, stricken by the credit crunch, was formally nationalised by the Labour government.

Northern Rock was later sold to Virgin Money. And today, they’ve announced they are creating 200 new jobs this year, including 120 in the North East.

The announcement coincides with George Osborne’s trip to Newcastle today.

Updated

Here’s a video clip of George Osborne explaining how Britain hasn’t completed the task of recovering from the Great Recession.

Read the news story here

Rather than trudging back to 9.30am, new readers might prefer to read our news story on today’s growth figures:

GDP surpasses pre-recession high as economic growth hits 0.8%

Larry Elliott: Chancellor is right not to be smug

Our economics editor, Larry Elliott, says the chancellor is wise to resist crowing today (as I flagged up earlier, George Osborne tweeted that there’s still “a long way to go” to complete the recovery).

Larry writes:

For one thing, this has been the mother and father of a recession and it has taken far longer than Osborne expected for the economy to respond to the Bank of England’s cheap money medicine.

There have been four deep downturns since the second world war; two presided over by Labour governments, two by Conservative. After the first oil shock in the mid-1970s, it took 12 quarters for the economy to return finally to its pre-recession level of output; after the recession in Margaret Thatcher’s first term it took 16 quarters; after the recession following the Lawson boom of the late 1980s its took 10 quarters. This time it has taken 25 quarters.

The second reason it makes sense for Osborne not to crow too much is that in terms of output per head of population, the downturn is still not over. The population has risen since the economy went into recession in early 2008 and at the current rate it will be 2017 or 2018 before the losses in per capita GDP are made up.

More here: George Osborne is right not to be smug over GDP numbers

Updated

Unions are flagging up up that most people are not feeling the recovery in their pocket:

Wage growth, or rather the lack of it, is one of the clearest signs that Britain’s recovery isn’t feeding through to the workers.

Pay rises have been lagging behind inflation since the crisis began, and hit their lowest level since 2001 in the three months to May (at just +0.7%).

Today’s GDP report is only the first stab at assessing the UK economy’s performance in the second quarter of 2014.

It doesn’t actually contain any data from June at all — the Office for National Statistics just estimates how the various sectors performed, based on history and the data from April and May.

John Bulford, economic advisor to the EY ITEM Club, reckons the 0.8% growth reading could be revised up next month:

The disparity between official figures, which show manufacturing output growing by just 0.2% and construction contracting by 0.5%, and business survey data, which show both sectors roaring ahead, is glaring. With that in mind, it would not be a surprise to see the Q2 figures revised up in the next release in mid-August.”

Guess who had another ‘helpful suggestion’….

Updated

Ben Chu has pulled together another great chart, showing how Britain’s GDP per capita (economic size divided by the total population) has also lagged most of the G7 group of advanced economies since 2008.

Updated

Chart: How Britain lagged the G7 since 2008

Italy is the only member of the G7 to have recorded slower growth than the UK since the first quarter of 2008

That was the time when the credit crunch was transforming into the biggest financial crisis to grip the world since the Great Depression.

Ben Chu of the Independent has helpfully tweeted this chart to show it:

At which point, the Conservative team at the Treasury suggested he might like to rescale it to 2010 (when the coalition took power).

Better, but still not top of the class…

Guy Ellison at Investec Wealth & Investment, says Britain’s recovery has been “a long slog”:

The UK is the second to last member of the G7 group of economies to reach the milestone and took much longer to rebound than in past recessions.

Geraint Johnes, director at Lancaster University’s Work Foundation, has rubbished the notion that today’s growth figures are a triumph for George Osborne’s austerity programme.

After all, the chancellor did (sensibly) drop the idea of eliminating the deficit in this parliament after it became clear that he was spiralling off course.

Johnes says:

“What do the figures say about the effectiveness of austerity and the management of the economy? The Chancellor’s actions trump his rhetoric. Austerity was effectively abandoned a couple of years ago, and the economy has flourished – albeit in patches – since.

And next year’s growth is unlikely to match the “rather remarkable results” being achieved at present, Johnes adds.

Updated

Summary

Rob Wood, economist at Berenberg, agrees that growth was “not balanced this quarter”:

The service sector (+1.0%) was strong while manufacturing (+0.2%) and construction (-0.5%) were weak. The longer the recovery remains unbalanced the less sustainable it may seem to aim for growth continuing around these rates.

That being said, manufacturing and construction suffered from an usually weak May and could bounce back strongly in June and through Q3

Manufacturing data from other European countries was also weak in May, suggesting the global economy had a hiccup.

A lot of people are hammering home the fact that the UK’s recovery has been the slowest in living memory.

This tweet from RBS shows the tortoise-like nature of the rebound:

And the FT explains just how badly it compares it to previous recessions over the last 100 years:

Ed Balls: GDP per head won’t recover till 2017

Better late than never, George.

That broadly sums up Ed Balls’ response to the GDP data, who points out that America’s economy hit its pre-crisis peak back in 2011.

The shadow chancellor says:

“At long last our economy is back to the size it was before the global banking crisis – three years after the US reached the same point.

“But with GDP per head not set to recover for three more years and most people still seeing their living standards squeezed this is no time for complacent claims that the economy is fixed.”

Balls adds that Labour measures, such as more free childcare and a 10p starting rate of tax, will make the recovery fairer. More here.

Jeremy Cook, chief economist at currency company World First, says the recovery is “engendered, sustainable and flourishing”.

“Once again, it was services that drove the economy onwards, rising by 1%. Construction slipped back in Q2, falling by 0.5% following a strong Q1 helped by home building and repair efforts to flooded properties in the west country.

“Industrial production rose 0.4%. The recession prompted a renewal of the phrase “Keep Calm and Carry On” and all in the UK will be hoping that this expansion does just that.”

 

Simon Baptist, of the Economist Intelligence Unit, points out that the recovery has been “notable for its extremely slow pace”:

Austerity in this parliament has been a drag on growth.

Markets needed to see a long term plan to big ticket items like pensions, healthcare and welfare spending; the government has done some of this for which it deserves credit, but growth now is in spite of austerity not because of it.

GDP reaction starts here

Ben Brettell, senior economist at Hargreaves Lansdown, warns that the UK economy “isn’t as strong as it looks”.

He also points out that GDP per person is still lagging (check out this chart)

While it has surpassed its pre-crisis peak in absolute terms, a larger population means GDP per capita is around 6% lower. The economy has been growing by adding jobs, but there is an underlying issue with productivity, and this is why we are not seeing any meaningful increase in wages.

Despite another upgraded growth forecast from the IMF I believe significant challenges lie ahead.

Don’t forget, GDP per capita is still below 2008 peak

I flagged this up earlier, but it really can’t be repeated too many times:

Britain’s GDP per person is nowhere near the level it reached before the recession.

The ONS hasn’t issued a new estimate today but, based on earlier data, GDP per capita is probably at least 5% smaller than in 2008.

Updated

The Liberal Democrats want their share of the credit, declaring that they have “cleared up Labour’s economic mess”.

Lib Dem Treasury Minister Danny Alexander says Britain has passed a major milestone today.

“The main reason that we stepped forward to form the coalition was to sort out Labour’s economic mess and rebuild a stronger economy and a fairer society for the future.

“By forming the coalition we gave the country a long term economic recovery plan based on Liberal Democrat values and policies and the stability to see it through.”

George Osborne: we’ve got a long way to go

Chancellor George Osborne is touring the North of England today – designed to show that the government takes regional regeneration seriously.

He’s tweeting from Newcastle:

Britain’s manufacturing sector didn’t enjoy a blowout quarter — its activity expanded by just 0.2% in the April-June quarter, down from 1.5% in January-March.

The key chart: GDP finally over pre-crisis peak

And here’s confirmation that the 0.8% growth in the last quarter was almost totally due to the service sector (which makes up around three-quarters of the economy)

Britain’s agriculture sector also shrank during the quarter, by 0.2%.

On an annual basis, the UK economy is 3.1% bigger than a year ago.

The construction sector contracted during the quarter – with its output shrinking by 0.5%.

Britain’s industrial sector grew by just 0.4% in the quarter, a slowdown compared to the 0.7% in Q1.

Britain’s service sector continues to drive the recovery.

It expanded by 1.0% between April and June, which is the strongest growth since the third quarter of 2012.

The Office for National Statistics confirms that the UK economy is now 0.2% larger than at the previous peak, in the first three months of 2008.

UK economy grew by 0.8% in second quarter of 2014

Here we go! The UK economy grew by 0.8% in the second quarter of this year.

That’s means Britain’s GDP is finally above the previous peak set in 2008.

Lots more detail and reaction to follow…

Ed Balls has rather pre-empted today’s growth figures, in an article in today’s Guardian.

In it, the shadow chancellor argues that there’s no cause for complacent celebrations, just because GDP has reached its pre-crisis levels (assuming it does….)

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.

Conservative complacency won’t help working people

Just over 20 minutes to wait until we learn how fast the UK economy grew in the second quarter of 2014.

Paul Hollingsworth of Capital Economics says it will be “another milestone for the recovery”, if GDP comes in at +0.8% as expected, 0.2% above the 2008 previous peak.

GDP per capita still lagging behind

There’s a very important reason to be cautious about today’s growth numbers, which explains why many people don’t feel the benefits of the recovery.

GDP per capita (ie, the amount of economic output divided by the number of people in Britain) is still more than 5% below the pre-crisis peak.

As the ONS said this month, “GDP per head has recovered relatively slowly since 2009″, and was 5.6%. This chart confirms it:

Tax campaigner Richard Murphy comments:

And that means almost everyone in this country is still worse off than they were in 2008. That’s nothing for the government to celebrate.

Lloyds close to Libor deal

RBS isn’t the only bank tackling “conduct and litigation issues”, of course.

Its UK rival, Lloyds Banking Group, has confirmed this morning that it is close to reaching a settlement over its role in Libor-rigging.

This is the scandal in which traders allegedly conspired to fix benchmark interest rates that underpin many financial markets. Lloyds is expected to pay a fine of £200-£300m.

Updated

Today’s GDP figures should also show that the UK economy has grown for the last six quarters — the longest sustained run of rising output since 2008.

RBS shares surge 12% after rushing out better-than-expected results

Royal Bank of Scotland has surprised the City by rushing out its results a week early, in the latest sign that conditions are improving in the UK economy.

RBS, which was rescued by the taxpayer after the great recession struck, has reported an unexpected rise in pre-tax profits, thanks to a fall in bad loans and a general improvement in economic conditions.

Shares surged by over 12% when trading began in London, even though CEO Ross McEwan cautioned that it still faces a number of “conduct and litigation issues”.

Here’s our full story:

RBS reports largest profits since bailout as share price soars

To hit its pre-crisis peak, UK GDP must have risen by at least 0.6% in the last quarter, I reckon.

Most economic data from April, May and June has suggested that growth remained quite strong, which is why economists expect GDP to have risen by 0.8% or 0.9%.

The slowest recovery since at least 1920

It’s wise to be cautious when economists talk about X or Y being the best or worst ‘on record’.

Reliable statistics don’t go back terribly far — for example, the central bankers faced with the Great Depression were hampered by limited knowledge about how their economies were faring*.

But it’s clear that this UK recovery has been the slowest in at least 100 years.

This graph from the NEISR thinktank (which includes their estimate for today’s GDP data) compares the last six recessions, going back to 1920.

* – the excellent Lords of Finance explains this well.

UK growth figures to show state of the recovery

Good morning.

After the longest downturn in recent UK economic history, has Britain’s economy finally returned to the levels before the 2008 financial crisis?

Economists think so, and we’ll find out for sure at 9.30am this morning when the Office for National Statistics issues its first estimate of UK growth for the second quarter of 2014.

The ONS is expected to report that GDP expanded by 0.8% or 0.9% between April and June. That would match, or exceed, the growth seen in the first three months of this year, showing that the UK recovery continues to outpace other advanced economies.

And with an election just 10 months away, the figures are eagerly awaited in both Westminster and the City.

Just yesterday, the International Monetary Fund upgraded its forecast for UK growth again – it now expects GDP to rise by a punchy 3.2% this year. Good news for George Osborne.

IMF predicts Britain’s GDP growth rate will surge to 3.2% by year end

But critics of the chancellor argue that Britain is enjoying another of those consumer-driven recoveries that have caused such trouble in the past.

So we’ll be scrutinising today’s data for evidence of whether the economy is really rebalancing, or not.

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