This morning the latest stats on the UK’s economic performance for the second quarter of this year were out. And on this occasion the ONS revealed a pretty good set of numbers. This is what they say.

In Q2 the UK economy expanded by 0.6 per cent, after growing 0.3 per cent in Q1. Year on year growth is now 1.4 per cent. Okay, growth of 1.4 per cent is way below what the UK needs, and what it used to enjoy, but it is the best performance for some time, and that needs to be celebrated.

Okay, the UK economy’s total output is still some 3.3 per cent below the 2008 peak, so the downturn, or if want to use more emotive words the depression, still continues. It seems likely that the UK will see total output continue to be less than the 2008 peak until either very late next year or in 2015, making this easily the longest downturn ever recorded.

Some point to debt levels in the UK, and say we are kidding ourselves. The truth is that if you take total UK debt – that’s government, household, corporate, and financial – the UK is one of the more indebted countries in the world. Of the world’s largest developed countries, only Japan has more total debt. Indeed financial debt is still running at some 202 per cent of GDP, which is easily the highest level amongst the world largest developed economies.

Household debt remains too high, and furthermore is expected to rise over the next couple of years. If, because of global forces outside the control of the Bank of England, interest rates rise, households and so-called zombie companies will face a major challenge. For a very bearish view on UK debt, see: The next crisis, by Ann Pettifor    For what might happen to UK households if rates rise, see: What will happen to households as rates rise   For the danger posed by Zombie companies, see: The Zombies are back    And for why rates may rise regardless of what the Bank of England wants, see: The Great Reset 

George Osborne seems to have decreed that house prices will never fall; not on his watch. This may well earn his political party election victory, but is it what the UK needs?

On the other hand there is very real evidence of companies bring their manufacturing back to the UK. See: Can the UK reshore its way back to health? 

The UK doesn’t need a house prices boom, but it does need a housing construction boom. And in this respect there is good news. According to the Royal Institution of Chartered Surveyors (RICS), over the coming twelve months 59 per cent more surveyors who responded to its latest construction survey said that they predict workloads will continue to rise rather than fall. RICS said: “With every pound spent on construction in the UK generating almost three pounds of wider economic growth, this will undoubtedly be seen as good news for UK plc.”

And now return to today’s ONS report. In Q2 there was an upward contribution (0.08 percentage points) from production; with manufacturing increasing by 0.4 per cent following negative growth of 0.2 per cent in Q1 2013. So that is not hot air; that is real. In Q2 2013, output in the construction industry was estimated to have increased by 0.9 per cent compared with Q1 2013. In Q1 2013, construction output was at its lowest level since Q1 2001.

There is still much that can go wrong, and George Osborne is playing with fire with his help to buy scheme, but that does not mean to say that this time around the entire recovery is built on an illusion. This time it feels more real.

© Investment & Business News 2013

Comments
  1. […] UK sees strongest underlying quarter in two years (themoneyspy.wordpress.com) […]

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