Two Cheers for the Latest UK GDP Figures
28 October 2013
WBS Dean Professor Mark Taylor comments on the latest GDP figures for the UK - a welcome increase for July to September, but the UK is still producing and consuming less as a nation than we did five years ago.
The latest GDP figures, a welcome increase of 0.8% for July to September, are the highest quarterly increase in three years and we’ve now had three successive quarters of growth. However, we have to remember that GDP is still about 2.5% beneath its pre-crisis peak. So we’re still producing and consuming less as a nation than we did five years ago.
Furthermore, there is a big question about how balanced and sustainable this growth is. Long-term growth can only be sustained if it is underpinned by investment and export growth. But evidence of a rebalancing of the economy towards investment and exports is hard to find. Indeed the more obvious conclusion is that growth is again being driven by consumption, underpinned by an increasingly buoyant housing market and easier credit, which sounds some of the same alarm bells that were last heard just before the global financial crisis. The government’s ‘Help to Buy’ and ‘Finance for Lending’ schemes can only be further inflating house prices as demand for housing goes up with little increase in supply.
There is therefore a real risk that this GDP growth rapidly leads to inflation, especially if worker productivity (the amount produced per worker) does not improve. On the other hand, if productivity does improve, this will jeopardise the creation of more jobs. Again, long-term growth underpinned by investment and exports would be the only way to guarantee a sustainable reduction in unemployment.
The headline GDP figures for the UK as a whole also mask considerable regional disparity. Figures produced at Warwick Business School show that, just like we observe with house prices, London and the South East are recovering more rapidly than the struggling North East and Yorkshire, for example, with growth in output in the East and West Midlands somewhere in between.