UK GDP figures: a turn for the better?

Last week, the Office for National Statistics released their first estimate for the economic growth of the UK economy in the months of July, August and September, known as the third quarter. Somewhat unexpectedly, a 1% rise in the GDP of the country was announced. Given the excuses given by the Chancellor, George Osborne, for previous falls ranging from the weather to the royal wedding, using the Olympics as a reason for growth does not seem so far fetched.

All of the Olympic and Paralympic ticket sales were counted in this quarter’s economic output, and the ONS predict that approximately 0.2% of the growth is solely down to ticket sales, with the boost to employment and creative industries harder to estimate. Of course these figures are only an estimate, and as we have seen in previous quarters, they can be revised down.

A 1% rise on its own in the UK’s current economic situation is a good thing, and suggests that we have left the second dip of recession. It is also the largest growth seen in one quarter since the financial crisis began in 2007. George Osborne is of course delighted that the economy seems to be responding to his budgetary measures, but Labour spokespeople are wary of this analysis, given that the package of tax increases and spending cuts (worth about 4% of GDP) are only coming into effect in January 2013, and that many of the reasons given for this quarter’s growth are temporary.

In other G8 countries such as Germany and France, growth in the 2nd quarter of 2012 was slow or non-existent, 0.3% and 0.0% respectively, compared with -0.7% in the UK for the same period. The predicted rise of 1.0% in the UK GDP in the third quarter is an even more surprising result because of this, and the French predictions of a contraction of 0.9% in their GDP for this quarter. All of these figures mean that the EU predicts the 27 member states will see overall no change in the GDP of the region across 2012, whereas the UK alone would see a 0.5% rise. Given our unemployment figures and our continued decline in manufacturing and construction sectors, it is hard to see how this position can be maintained for the UK economy compared to manufacturing giants, such as Germany.

Ed Balls, the Shadow Chancellor, has suggested that this growth is fragile, and the government must remain wary of threats to its stability, such as Greece bailing out of the Eurozone, or the effects of hurricane Sandy hitting the Caribbean and the East Coast of the USA on the global economy. The Conservatives are also cautiously optimistic about the UK’s chances of staying out of recession and falling into a triple dip recession for the first time in UK economic history.

With growth in the economy and jobless rates tentatively down in the last quarter (although this does include part-time and temporary work), signs are that the UK is slowly on the mend, but with more public spending cuts on the horizon, will the recovery continue? Christine Lagarde, Managing Director of the International Monetary Fund, has called for austerity measures to be slowed down, else risking economic growth. The IMF has changed the way they estimate the effects of austerity measures away from the method used by the British Treasury, so that a contraction of approximately 0.9% to 1.7% will be felt across Europe if austerity measures continue.

Whilst these figures are only estimates, and no one knows who has the correct interpretation, each party will argue that they have the correct plan. Our fragile economy is in their hands.