How Fast is the UK Growing?
According to the Official for National Statistics (ONS), the UK’s total economic output as measured by gross domestic product (GDP), rose by 0.8% between the months of July and September. The ONS commented on how all sectors have performed reasonably well in the recent times.
While the 0.8% increase might not seem significant, it is for the UK economy. It is the fastest quarterly growth the UK has seen since 2010, building on the 0.7% increase after the second quarter. George Osborne, Chancellor of the Exchequer, said, “[Britain] is on the path to prosperity” with the Deputy Prime Minister Nick Clegg claiming “we are firmly on the road to recovery”.
Where is the Growth Coming From?
As the Help to Buy scheme is introduced, created to help first-time house-buyers obtain mortgages, ONS figures claim construction grew by 2.5% over the quarter. Additionally, manufacturing grew by 0.9% and the services sector grew by 0.7%, thanks to the private sector.
The UK economy is largely a service-based economy, with the service sector accounting for nearly 75% of total output for the economy. Interestingly, current service output is now 0.4% above the sector’s peak before the crisis, which was in the first quarter of 2008.
Where the UK Economy Stands Today
Despite all-round growth, these recent figures may well be revised later on. Even if they are as rosy as they sound though, the shadow chancellor Ed Balls has said “millions of people across the country [are] still seeing prices rising faster than their wages” and living standards are still an issue for many families and households. The UK economy is still around 2.5% smaller than it was since its peak in 2008 as a whole.
Graeme Leach, the chief economist at the Institute of Directors, explained “the biggest challenges remain on the supply side, not the demand side.” He went on to explain that, due to constraints on the supply side, “the current growth spurt is unlikely to extend beyond next year.”
What is Next for the UK Economy?
The recent figures are promising, but they do not disclose all of the story. What comes next is clearly uncertain as always, but the UK certainly has some work to do yet in order to create a longer, stronger and more meaningful recovery. Relatively speaking, the UK is still behind other leading economies such as the United States. According to John Longworth, the director-general of the British Chambers of Commerce, the US economy has “managed to recover the output lost during the economic downturn.”
Capital Economics economist Samuel Tombs commented on the growth. He suggested that the UK economy is unlikely to sustain its growth for much longer due to the lack of real rising wages as inflation rises are outpacing wage rises. Tombs also mentioned continued cuts in government spending and a slow euro zone, both of which will apparently contribute to the difficulty of the UK economic recovery.
On a more positive note, Tombs did say “with employment growing, confidence returning and productivity still well below its potential, it seems unlikely that the recovery will fade significantly either”. Mark Carney, the Bank of England Governor, said that the growth originated from a low base meaning the underlying economy is still not strong as it should be. Interest rates will now remain at their record lows of 0.5% for another three years, and the outlook for further growth now is good, but still cautious.