Last quarter sees a GDP boost - what the Press say

Posted on: 27 October 2010 by Alexander Hay

What to make of the new GDP figures, that claim growth was twice that so far predicted? The press and media are on it... the BBC reports today, George Osborne is claiming that the surprisingly good data is a sign that we are on the road to recovery. But is it?

The economic situation was still "relatively choppy," the prime minister's official spokesman said, but the growth figure "is something we can take confidence from". Mr Osborne, as chairman of the cabinet's economic affairs committee, would now be leading a "ruthless focus on growth" by going through each government department in turn to push for greater efficiencies and deregulation and "clear any bottlenecks," the spokesman added.

The Telegraph certainly sounds a note of caution - as the economy recovers, there will be a need to raise interest rates too:

Interest rates have been at historically low levels since the credit crisis took hold... It had been expected there would be little change before the end of next year, but on the back of yesterday's strong growth figures some traders were predicting two rate rises before then, with a base rate of at least 1 per cent by the end of 2011. 

Similarly, the Daily Mail says that some at the Bank of England are thinking it's a good idea, all things considered:

But Andrew Sentance, an external member of the Bank of England’s Monetary Policy Committee, argued the figures meant interest rates should go up. He said: ‘I am in favour of gradually moving interest rates up from their very low level which I think can be done without disrupting business or consumer confidence.’ The economist has consistently been the only member of the committee voting for rates to rise.

Still, as The Independent says, the markets are very happy with the news, at least for now:

One of the largest contributions to the growth figure came from the construction sector, which accounted for a quarter of the new growth, despite representing only 6 per cent of the economy. On an annualised basis, activity in the building trade is up 16 per cent, though from a depressed base.

Otherwise, business services, especially in telecoms and in computer support did exceptionally well, as did road haulage and the retail trade. Banking and other financial services were less strong. The Engineering Employers' Federation pointed out that manufacturing in the UK had enjoyed its best 12 months since 1994, boosted by exports, though they warn that the nation "can't take growth for granted".

And as eGov Monitor reports, a boost in GDP is good news for the regions as well as the London markets:

Deputy First Minister, Ieuan Wyn Jones, has responded to the latest GDP figures published today. The Deputy First Minister said: "Any growth in the economy is to be welcomed. However, we must remember we have still seen a slowdown as the last quarter saw 1.2% growth. The recovery is far from fully established and is yet to gain momentum.

The Guardian has an interesting graph comparing this recession with the ones that have gone before it, whilst commentator Chris Payne remains pessimistic:

So these GDP figures in many ways suggest nothing more than that the UK economy's slide towards anaemic growth or perhaps another recession is slower than people thought; that is to say that the positive factors from the second quarter (April to June) have not dwindled quite as fast as expected. But this does not mean the private sector is gearing itself up for an investment splurge. There remains as yet little indication that a new investment cycle is under way. Moreover, if businesses are waiting for consumers to start spending again before they invest, then they might well have a long time to wait, for the UK is demonstrating a rather ugly congruence of slowing retail sales and very low savings rates (sub 5%). Consumers and households will surely need to rebuild their savings before the confidence returns to start spending again.

Right wing blogger Guido Fawkes is inevitably feeling more buoyant, accusing Labour and the BBC of trying to talk down the news, but he still counsels caution:

[It's] better than expected and Labour’s double-dip talk is looking increasingly desperate but it’s not all good news. The Legatum Institute’s Prosperity Index released this morning has Britain lingering at an unlucky thirteenth in the world, with little chance of breaking into the top ten anytime soon.

And with that in mind, much to his, and their surprise, Guido finds himself in agreement with the Morning Star, which add that government cuts may have a knock-on effect and stop the recovery in its tracks:

Prime Minister David Cameron promised a "relentless focus on growth" on Monday, but critics doubt that the private sector can fill the hole left by the coalition's austerity measures, which are expected to cost at least 600,000 public-sector jobs.

TUC general secretary Brendan Barber said that today's estimate "may be better than expected but, with unemployment looking increasingly stubborn, the economy will need to perform stronger than this to generate jobs for the millions still out of work as a result of the recession."

Finally, CITY A.M. has gathered the views of economists on the rebound - some of whom have interesting views on the matter:

These things are never linear – it’s not unusual to get erratic data at a turning point. We are going to see a rebalancing of the economy, which is an awfully good thing but also involves a bit of pain.

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Alexander Hay


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