Well I never!
Today’s Quarterly National Accounts from the Office for National Statistics show that GDP grew by 1.2 per cent in the second quarter of the year. This strong growth is unchanged from the estimate published last month, but government expenditure was revised upwards from 0.3 per cent to 1.0 per cent, as Bloomberg put it in their headline:
U.K. Growth Fuelled by Jump in Government Spending
Bloomberg also reported something that was missed in most other stories about the IMF’s report on the UK:
The International Monetary Fund yesterday cut its 2011 economic growth forecast for the U.K. and said the Bank of England should be ready to add more stimulus if the recovery falters.
Over at Investor’s Chronicle, Chris Dillow has an excellent article that looks at the national accounts. He points to the way companies are continuing to hoard their profits. There’s too much meat to summarise here, but I’ll cut to the chase:
If the government cuts spending whilst firms are still unwilling to invest, aggregate demand could fall which in turn would reduce tax revenues, thus keeping the deficit high.
A further point that’s worth making about those record surpluses – one argument for taking an axe to public spending is that it will ‘crowd in’ private sector investment by making it easier for businesses to borrow. But when corporate savings are this high, that’s hardly the issue.