It takes Britain out of its double-dip recession. It says little about where the economy goes from here.
Whether growth is positive or negative in any single quarter has little long-term significance when the growth rate is bobbing up and down around the zero mark as it has been in the past few years. A key characteristic of the UK economy since the financial crisis has been a lack of sustained recovery. Another is the huge uncertainty about its underlying trend caused by a seemingly interminable series of one-off special effects on growth, from royal-themed bank holidays to extreme weather. So, too, with the third quarter, which was flattered by the London Olympics and the rebound from the second quarter’s celebrations of the Queen’s jubilee. It will take more evidence of growth to corroborate that the economy has turned the corner.
On its own merit, however, a 1 per cent rise in national income is not something to dismiss. The first estimate of growth is often revised but provided it survives further scrutiny, it reflects a real addition in goods and services for the UK’s population to enjoy.
The cause for cheer does not end there. The third quarter was better by some margin than the average forecast of 0.6 per cent. If North Sea oil and gas – less susceptible to influence by policy choices in the short run – are excluded, the economy is close to its pre-crisis peak. Moreover, the growth was broad-based. Agriculture, production and services all grew. These facts suggest that the economy may have more strength than economists have picked up.
The glaring exception is construction, which fell by 2.5 per cent after sliding nearly 10 per cent in the first half of the year. The government must take its share of the blame for this collapse in activity. While it was right to rein in the fiscal deficit, it has cut infrastructure investment too much and current spending too little. The UK will be less productive as a result. The slump in construction also reflects the unfinished job of cleaning up a dysfunctional banking system that leaves aspiring housebuyers bereft of credit.
It is unwise to draw larger policy lessons than this. Bank of England governor Mervyn King may be too gloomy when he says we might just have to wait patiently for growth. But some more patience before concluding whether policy must change may be no bad thing