GDP – quick reactions
The economy grew 0.8% in the third quarter (according to the initial estimate, which is subject to revision).
The headline rate of growth (0.8% in the quarter, and 1.5% on the year) is decent – a solid figure and the kind of growth should always have been expecting by now. There is no longer any doubt that the OBR will have to make substantial upward revisions to its growth forecast for 2013 (and probably 2014) at the Autumn Statement.
But, despite a decent top-line, there remain many reasons to be concerned.
First the economy is still in a hole. GDP remains some 2.5% below its pre-recession peak making this the slowest recovery in a century.
Second, there are worrying signs that the economy remains unbalanced. The service sector is now above its 2008 peak but manufacturing is some 8.9% below and construction 12.5%. 0.6 percentage points of the 0.8% growth this quarter was driven by the service sector (and 0.3% of that from business services and finance). The economy remains unbalanced at the sector level and this suggest unbalanced at the regional level to.
Third, despite this welcome pick up – it has come three years later than the government anticipated. The recovery (as the chart below makes clear) is well off track.
Finally – and most importantly – whilst the economy may now be expanding at a decent clip, real wages continue to fall. As long as living standards remain squeezed it is hard to talk about a meaningful recovery.