Member Article

UK economy grows

Figures from the Office for National Statistics reveal the UK economy has climbed out of recession.

GDP was estimated to have increased by 1% in the final quarter of 2012, flattered by the Olympics and Jubilee celebrations, analysts suggest.

The output of service industries was estimated to have increased by 1.3% in the quarter, while construction sector output was estimated to have decreased by 2.5%.

Chancellor George Osborne said: “There is still a long way to go but these figures show we’re on the right track and are a sign the economy is healing.

“We’ve cut the deficit by 1/4, over 1m jobs have been created in the private sector, inflation is down and the economy is growing.

“Yesterday’s weak data from the eurozone were a reminder that we still face many economic challenges at home and abroad.

“By continuing to take tough decisions to deal with debt & equip our economy we are laying the foundations for lasting prosperity.”

Here’s what some of the commentators said:

Tony Dolphin, IPPR Chief Economist, said: “Weak growth for the past two years can be partly accounted for by the combination of high food and energy prices, which have hit consumers hard, exports falling short of expectations due to the euro crisis and a shortage of credit for small businesses which has led to weak business investment. It is also clear that the Government’s austerity plan has held back growth.

“The outlook is still very uncertain, not least due to the prospect of increases in food and energy prices renewing the squeeze on households. The Chancellor should respond in his autumn statement. Spending on infrastructure gives the biggest boost to the economy in the short-term. George Osborne should announce an immediate increase in infrastructure spending of £15 billion over the next two years to kick-start growth.

“In the medium term, Vince Cable’s Business Bank should be given a wider remit and significant funding – IPPR recommends £40bn – to make a difference. It should provide long-term loans for infrastructure projects, such as railway building, and to small and medium-sized enterprises.”

Senior Policy Adviser at the Forum for Private Business, Alex Jackman said: “While great news, 1% is still weak growth, particularly as its likely the Olympic boom will have positively distorted that figure.

“We’ve just come out of a double dip recession, no one wants to see a triple dip materialise, so the Government has to act now – the time for talk is over. The Coalition must slash business red tape: we need to deregulate, deregulate, deregulate to keep this growth momentum going.

“The UK economy must now be tweaked for sustained growth into the months and years ahead, and this must be achieved in part by helping small firms grow and to continue creating more jobs for the private sector.

“This week we have seen the announcement of the Supply Chain Finance Scheme, which whilst a good initiative is in itself an acknowledgement that the banks still aren’t lending. So we also need Government to continue exerting pressure on the lenders to do their job, because only when the banks resume lending to SMEs can the economy truly recover at a decent pace.”

Richard Driver, currency market analyst at Caxton FX, said: “This is an excellent figure and goes to show that David Cameron wasn’t lying when he hinted that there was good news on the way. We were more optimistic than most ahead of this release but this has smashed our expectations.

“The 0.7% contraction seen in the first two quarters of 2012 appears to have been well and truly recovered, led by significant growth in the manufacturing and services sectors. Obviously the unwinding of the effects of the Diamond Jubilee and the Olympics account for much of this rebound but by no means all of it.

“Underlying quarterly growth probably amounts to around 0.5%, which is a great result. Hopes can legitimately be raised for another positive GDP figure in Q4 and with the UK economy exiting recession, the BoE looks unlikely to add to its QE programme in November.”

John Cridland, CBI Director-General, said: “It’s really encouraging news that growth has snapped back so strongly in the third quarter. Although the Olympics and Jubilee have made up the majority of that growth, these numbers do also seem to point to some acceleration in underlying momentum.

“We expect conditions to remain positive going into the fourth quarter, reflecting some easing of the pressure on household budgets from lower inflation. But the global economic environment remains challenging.”

TUC General Secretary, Brendan Barber, added: “It’s good news that the economy has finally stopped shrinking, although this growth has taken far too long to arrive.

“Austerity has already set us back at least two years. It’s time to change course so we can make up for lost time and secure the strong sustained growth we desperately need to create good quality jobs and ensure real wage rises for hard-pressed families.”

Graeme Leach, Chief Economist at the Institute of Directors, said: “The bounce back in GDP growth is good news but not enough to pop the champagne corks. More than half of the quarterly increase is attributable to the Olympics and the reversal of the Jubilee effect in Q2.

“The key message is that we’re out of recession but uncertain where we’re going. Not for the first time we need to heed the warning that you can’t see the road ahead through the rear view mirror.“Our view is that growth will continue in Q4 but we have to recognise there could be a fallback.”

Nida Ali, economic advisor to the Ernst & Young ITEM Club, said: “This is an even stronger increase in GDP than we were expecting, providing much-needed respite from the doom and gloom. Assuming that the bounceback from the extra Bank holiday in June accounts for 0.5% of growth, Q3 still saw underlying growth of about 0.5% which is really encouraging, particularly in the difficult external environment.

“But looking ahead, the economy continues to face significant challenges, both at home and abroad, so growth in subsequent quarters is likely to remain weak. As such, we still expect the Bank of England to expand QE, once the current tranche of asset purchases ends next month.”

Roy Harris, HSBC Midlands Regional Commercial Director, said: “These latest GDP figures show an encouraging improvement in the UK’s overall economic conditions. Our Growing British Business report shows that the majority of Midlands businesses are confident of growth over the next two years demonstrating the tenacity and determination with which business leaders are rolling up their sleeves and driving growth. Ultimately, the approach of these inspirational business leaders will have a positive knock-oneffect for UK PLC as a whole.

“The rise in employment rates also reflects our report in that business leaders are planning to invest in staff over the next two years in order togrow their business. HSBC is well positioned to help businesses get ahead when it comes to growth, for example by offering the business employer loan, companies can take advantage of lower interest rates if they havehired in the last six months. We urge UK businesses looking to succeed inthe current economic environment to come talk to us.”

Maureen Wright, the Managing Director at Westray Recruitment Consultants said: “This news is very encouraging for businesses and individuals, not just in the North East, but across the UK. After an extended period of “doom and gloom” it is a welcome respite to learn that we have finally exited the longest double-dip recession in over 60 years. With the recent encouraging news on a fall in unemployment, it is my hope that the construction industry can now look forwards after an extremely difficult period of time.”

Business angel Jeremy Middleton, of Middleton Enterprises, said: “This demonstrates the robust fiscal decisions that have been taken by the Government are starting to get the economy back on track. However, we must not rest on our laurels and must continue to reign in public spending and drive down debt. While the GDP announcement is good news, the financial climate is going to be difficult for some time as it is going to be a slow recovery.”

This was posted in Bdaily's Members' News section by Tom Keighley .