342

The ONS revised again. It always does, but it can be hard to keep up. You may recall, back at the end of 2011 the UK fell back into recession, suffering what we called a double dip — except it didn’t. Subsequent revisions of the ONS data on GDP revised the contraction away. You may also recall that the UK grew by 0.6 per cent in Q2 of this year, which was good, but working against this was that much of the growth came on the back of rising consumption, or falling savings. Given the high level of UK household debt, some might say that this development was a tad worrying — except that they didn’t. The data has been revised, and this time the story revealed is much more encouraging.

The first revision was to the headline figure. The ONS is now saying the UK economy expanded by 0.7 per cent in Q2. To put that in context, the US expanded by 0.4 per cent and the Eurozone by 0.3 per cent in the quarter. On an annual basis the economy expanded by 1.5 per cent.

Drill down, however, and the data looks more encouraging still.

It turns out – or at least this is what the latest data says – that investment jumped by 1.7 per cent quarter on quarter and net trade rose by 0.3 per cent. Okay, the poor old indebted consumer spent more too, largely by adding to his and her debt. Consumer spending was up 0.4 per cent – boosting retail sales in the process, but then again, it is all the more encouraging that at a time of growing consumer spending, net trade provided a positive contribution to growth.

As another story today shows that there has been a gradual rise in the UK’s export sector at a time when global trade is seeing only modest growth and this provides reason to hope that this time the UK recovery is for real. See: The UK’s export-led recovery

Drill down further still in the UK GDP data, and it emerges that both manufacturing and construction grew faster than services – or to remind you of the caveat, so says the latest data, which may get changed again.

Vicky Redwood, chief UK economist at Capital Economics, said: “Looking ahead, the economy still faces some serious constraints (including the fiscal squeeze and weak bank lending), so it may struggle to keep growing at quite such robust rates.”

It is not hard to be cynical about the data. Sure, manufacturing and construction are growing, but from very low levels. Considering where we are in the economic cycle, a growth rate of 0.7 per cent is pretty modest, and there are reasons to think growth will slow later in the year.

The point is, however, that the UK does appear to be recovering. The recovery is slower than we might like and there are reasons for caution, but compared to what we have seen over the last half a decade, the growth rate is pretty good. Relative to what we are used to, the UK is booming. In China, growth is around three times faster, but relative to what China is used to, it feels like a crisis. This time, unlike in 2010, the recovery does fell a little more real.

Let us finish on a qualified positive note. Other recent data from the ONS reveals that UK total net worth at the end of 2012 was estimated at £7.3 trillion; this was equivalent to approximately £114,000 per head of population or £275,000 per household. The estimated increase in UK net worth between 2011 and 2012 was £74 billion. Okay, the increase in wealth was largely down to rising house prices and equity values and they can fall as well as rise. The jump in asset values goes some way to justify rising consumer spending.

One question remains, however. How sustainable are rises in consumption at a time of high household debt on the back of rising house prices, at a time when they already seem too high?

© Investment & Business News 2013

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s