Today's GDP figures are certainly cause for cheer. After three years of flatlining the economy is finally showing signs of life.
Today’s GDP figures are certainly cause for cheer. After three years of flatlining the economy is finally showing signs of life.
A recovery was always going to happen at some point. The question, however, is why it has taken so long.
It is for this reason that, despite the inevitable attempt to talk up today’s figures by the government, GDP growth of 0.6 per cent is not cause for conceit on behalf of the chancellor.
We should have been at this point much earlier, not three years into the parliament. The economy had been growing for four successive quarters when Labour left office in June 2010; and as recently as the last quarter of 2012 we were still seeing contraction (of 0.3 in Oct, Nov, Dec last year). Prior to this fall there was also a quarter of 0.9 per cent growth.
It’s also worth pointing out that the US economy is now 3 per cent bigger than before the global crash, while the UK economy is still 3.3 per cent below its pre-crisis peak. In the US, of course, they have tended to favour economic stimulus over swingeing cuts.
GDP figures are also only one part of puzzle, with pay and living standards featuring far more heavily in the public mind than quarterly announcements from the ONS. It’s here that the government’s record is perhaps most vulnerable. As Richard Exell of the TUC has pointed out, “We are still heading towards an economy in which recovery is sluggish and low-paid, low-skilled, low-productivity, low-investment jobs”.
In the year to May pay grew just 1 per cent. However inflation for the same period was 3.1 per cent. In other words, average real earnings fell by about 2 per cent. Inflation also increased last month to 2.9 per cent, up from 2.7 per cent in May, represents a 14-month high and further squeezing real earnings. Pay has now fallen by £1,350 a year in real terms since the 2010 election.
The jobs picture is also a mixed one. The improvements which we saw in the jobs market in 2011 and 2012 have now flattened out. There have been some modest improvements in the rate of youth employment in the recent figures but the number of the long-term unemployed is set to hit £1 million by the end of the year.
In other words, today’s GDP figures should be welcomed but very cautiously. In terms of the overall economy, we are still a long way from where we should be. To those still seeing their living standards fall, celebrating growth of 0.6 per cent is a bit like cheering the smirk on the corpse.
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