The preliminary growth estimate is GDP grew by 1.0%, production 1.1%, service 1.3%, construction -2.5%. These had been affected by the special factors in the Q2, additional bank holidays, and the exceptionally poor weather conditions. Also, the Olympics had a number of effects, summarised in an article on the ONS website. “Overall these broadly leave GDP unchanged”, according to Joe Grice. GDP has fallen by 6.3% to the rough announced in 2009, and possibly about half of that trough has been recovered today.
Today’s estimated growth in the UK economy is very much despite the economic policy of HM Government. Despite a temporary bounce expected from the Olympics, due to ticket sales for the Olympics and Paralympics, the UK economy still has massive underlying structural faults, and it is very difficult to be optimistic about the future with any degree of certainty. George Osborne will be desperate to use the third quarter GDP figures to demonstrate that he has taken ‘tough decisions’, and that ‘the medicine is working’. However, any sign of growth on Thursday will reaffirm that the economy was always capable of growing, and indeed had been growing before the Conservative-Tory government took power. The figures will also much undermine the notion that some citizens of the UK are ‘intrinsically lazy’, a theme spun by a Government which has allowed Starbucks to pay no corporation tax amidst much public disgust.
Stripping out the effects of the Olympics, the economy is definitely flatlining – it’s flat at barely beyond 0%. Part of the problem is that the Conservatives and Liberal Democrats refused to acknowledge the cause of the crisis in the UK economy as being generated abroad. The financial crises of the past decade have restricted access to funding, suppressed consumer demand and stifled international and domestic growth. Consequently, their premature calls to blame the Eurozone crisis, aided and abetted by the British Chambers of Commerce, has smacked of a bad dancer, George Osborne, desperately trying to blame the floor. The standard rate of VAT increased from 17.5 per cent to 20 per cent on 4 January 2011, and is likely to stay at this historically record level. In a period of slumping consumer confidence an increase in VAT is effectively a tax on retailers rather than consumers. Initial attempts to absorb the increase in VAT are difficult to maintain when supply chain pressures are not equally suppressed, but as the year continues the VAT rise is likely to push up prices and further undermine demand. As with international cost changes this puts an increased focus on value and costs.
Whilst the average voter might be willing to swallow the story that Labour ‘spent too much’ in the previous government, being the cause of the depression, pump-fed to them vicariously by the BBC on behalf of the Conservative-Liberal Democrat government, it is an inescapable fact that UK business confidence slumped to its lowest point this year. This is confirmed amid fluctuating economic prospects, according to research by BDO. The BDO Optimism Index, which predicts business performance two quarters ahead, has hit a seven-month low in the firm’?s latest “Business Trends” report. The indicator fell for the fifth consecutive month, from 93.5 in June to 93.1 in July. BDO says there was a brief resurgence in business confidence in Q1 2012, where confidence reached as high as 98, but the index is now at the lowest level since December 2011. The poor performance is a sign that contraction will continue for the remainder of 2012. The UK’s trade deficit also more than doubled in August 2012, according to the Office for National Statistics. The difference in goods and services imported and exported widened to £4.2bn in August, from £1.7bn in July. The UK’s deficit with the 27 countries of the European Union – including the crisis-plagued eurozone – widened to £4.9bn in August from £4.4bn in July. Separately, the UK’s industrial production fell in August for the 17th month in a row. Arguably the trade statistics continue to provide few reasons for optimism in the short term, with the large drop in goods exports to parts of the eurozone over the past year underlining the ongoing impact of the crisis.
Firms are generally less confident in taking on staff too. The CIPD, which represents Britain’s employers and employment professionals, has previously highlighted that Adrian Beecroft’s fire at will proposal would be a ‘licence for bad practice’, and could harm the reputation of small businesses seeking to hire new employees at the very time when we need to help them drive growth and jobs. This further adds to the chorus of criticism of the proposals which we have already heard from business. It can hardly be a proud claim that the number of people in any employment, without the most basic of employment rights, is at an all time, as indeed the UK slips one place in “business friendly” ranking, announced today. So, somewhat despite the management of the economy by the Conservatives-Liberal Democrats, Britain is this week expected to emerge from recession later this week, with the Olympics providing a much needed boost to the economy in the third quarter. Analysts expect a 0.6% rise in GDP, lifting the economy out of the longest double-dip recession since the second world war. Economists have predicted that a rise in GDP would largely be a result of temporary effects, such as the Olympics. A bounce back is also expected after the jubilee weekend in the second quarter dented output. you can easily start to build a case of GDP growth is between 0.8, maybe even 0.9 (percent) in the third quarter.
The data published today may provide a further boost for George Osborne, coming after news of falling unemployment. The rising employment, consisting of a workforce with next-to-no employment rights, with zilch job security, may be a price ‘well worth paying'; for a start, you need some sort of workforce, however flexible and transitory to make a dividend for a shareholder. That will surely strengthen the chancellor’s resolve to stick to “plan A” budget cutting measures ahead of the autumn statement in December, but the ‘hard won respect from the markets’ will be in absolute tatters if the economy continues to suffer from drivers towards growth. It could be at least symbolic that George Osborne’s conference speech did not even mention ‘growth’ once this year in Birmingham. Vicky Redwood at Capital Economics has opined as follows, cautiously: “GDP will therefore need to have risen by more than that to point to any recovery in underlying output. Anything less should be viewed as disappointing. That is, however, likely to be only a temporary boost. Samuel Tombs of Capital Economics says: “There are bigger factors at play. The eurozone is one of the biggest constraints on growth.” He forecasts a 0.4% drop in GDP in the final quarter, meaning the UK would shrink by 0.5% this year. That would be bad news for George Osborne, who bases his budget on forecasts from the Office for Budget Responsibility, which has pencilled in growth of 0.8% this year.
Looking forward, the Conservatives-Liberal Democrats look set to continue on their course of deception, with David Cameron shamelessly lying on Twitter that Labour opposes all spending cuts. That is a naked lie: Labour has specified, for example, where it would not have cut in the frontline services, well before David Cameron’s “tough and intelligent” speech about law and order today. The problem with lies from the current government, unfortunately, is that they all dispelled eventually by the Office for National Statistics in time. The full answer will be revealed in the next few months, which even threatens UK’s much prized credit-rating. Voters will have a chance to provide feedback too on May 8th, 2015.
