GDP surpasses pre-recession high as economic growth hits 0.8%
George Osborne hails ‘hard work of British people’ as services sector leads way in dragging country out of recession.
Britain’s economy has recovered the losses caused by the financial crisis and surpassed its pre-recession peak in the second quarter of the year, by posting a growth rate of 0.8%.
The first estimate of growth between April and June showed the UK recovery is still on track, matching 0.8% growth in the first quarter.
The data provided another boost to George Osborne, a day after theInternational Monetary Fund revised up its forecasts for the UK, putting it ahead of the other G7 economies.
The chancellor said the prolonged downturn had left a deep mark on Britain. “Thanks to the hard work of the British people, today we reach a major milestone in our long-term economic plan. But there is still a long way to go – the ‘great recession’ was one of the deepest of any major economy and cost Britain six years.
“Now we owe it to hardworking taxpayers not to repeat the mistakes of the past and instead to continue with the plan that is delivering economic security and a brighter future for all.”
The economy is now 0.2% bigger than it was in the first quarter of 2008, before the full force of the crisis hit. Growth in the second quarter was led by the services sector – including hotels, restaurants, tourism and the City – which accounts for around three-quarters of the economy and expanded by 1%.
That was a stronger rate of growth for the services sector than the 0.8% achieved in the first quarter.
Other sectors fared less well: manufacturing output grew by 0.2% between April and June, sharply lower than the 1.5% increase in the previous quarter. The broader measure of industrial production – which includes mining and utilities, as well as manufacturing – rose by 0.4%, following a 0.7% increase in the first quarter. The construction sector contracted, with a fall of 0.5%, and the agriculture sector also shrank, by 0.2%.
Critics of the government’s austerity policies pointed out that Britain has taken longer to recover than all other G7 countries apart from Italy, which remains about 9% below its 2008 peak. The almost six years it has taken to make up the lost ground beats the maximum four years it took in all previous recessions.
Labour said the benefits of growth were unevenly spread and most workers, after six years of below-inflation wage rises, were being left behind.
Ed Balls, the shadow chancellor, said: “At long last our economy is back to the size it was before the global banking crisis – three years after the US reached the same point.
“But with GDP per head not set to recover for three more years and most people still seeing their living standards squeezed this is no time for complacent claims that the economy is fixed. Wages after inflation are down over £1,600 a year since 2010, housebuilding under this government is at its lowest level since the 1920s, and business investment is lagging behind our competitors.”
Most analysts were optimistic about the prospects for growth over the next couple of years, despite the threat of interest rate rises by the Bank of England. Threadneedle Street is expected to begin pushing up base rates later this year or next spring, but only gently and to a maximum 3%.
Capital Economics said it was confident GDP growth would exceed the IMF forecast of 3.2% this year and have staying power with 3% growth rates in 2015 and 2016.
Samuel Tombs, the consultancy’s senior UK economist, said: “With some slack still left in the economy, confidence returning, credit constraints loosening and inflation easing, we believe the UK will experience another couple of years of robust growth and only gradual rises in interest rates.”
Business groups were more cautious about the prospects for growth. David Kern, chief economist at the British Chambers of Commerce, said: “While it is welcome news that we have surpassed the pre-recession GDP peak of Q1 2008, this has occurred much later than in some of our major competitors, such as the US and Germany.
“It is important that we work to increase the contribution of exports and investment if this recovery is to become truly sustainable. In order to support the businesses driving the recovery, the Bank of England’s monetary policy committee must provide assurances that interest rates will not be raised until there is a clear case to do so.”
- The Guardian,