Growth rate ‘proves we’re finally on the mend’

BRITAIN’S beleaguered economy is finally “on the mend”, Chancellor George Osborne said today, as official figures showed a second successive quarter of growth.

George Osborne

All four main sectors showed improvement - the first time Britain has been firing on all cylinders for nearly three years, according to the Office for National Statistics.

The estimate of a 0.6% rise in gross domestic product (GDP) was the first time since 2011 that the UK has seen back-to-back quarterly growth, and doubled the 0.3% figure for the last period.

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It was in line with expectations but the fact that the struggling construction and manufacturing sectors managed to swing into expansion were seen as particularly encouraging as it suggested a broad-based improvement.

The Chancellor hailed the figures as a vindication of the coalition’s austerity policies, tweeting: “Britain’s holding its nerve, we’re sticking to our plan, the economy’s on the mend. But still a long way to go.

Prime Minister David Cameron said they showed Britain was on the right track and “building an economy for hard working people”.

Some economists doubt that the level of growth can be sustained in the second half of the year given that wages are still failing to keep pace with inflation.

While growth is seen as likely to continue, they suggest it could slip back to around 0.4% for each quarter. Forecasts for the full-year are around the 1% mark, with an accelerating rate in 2014.

Today’s 0.6% rise in GDP for the second quarter of 2013 saw services, production, construction and agriculture all up together for the first time since the third quarter of 2010.

The most significant contribution again came from the powerhouse services sector, which represents three-quarters of the economy. It grew 0.6%.

Within this area, business services and finance rose 0.5% after slipping back in the first quarter - with architectural and engineering activities making the strongest contribution.

Hotels, restaurants and distribution also contributed to the services rise as they grew by 1.5%.

Meanwhile the construction sector, which has been bolstered by Government initiatives to stimulate home buying, turned a corner as it rose 0.9% after falling 1.8% in the previous quarter.

Manufacturing also saw a turnaround, picking up 0.4% after a 0.2% fall last time. It contributed to an overall increase in the production sector of 0.6%.

But manufacturing remains 10.2% off 2008 pre-crisis levels, with construction still 16.5% down. Overall GDP was 3.3% below its peak.

The rise in the second quarter was the best performance, excluding special events, since the third quarter of 2011. A 0.7% rise in the third quarter of last year is attributed to a bounce-back from the Jubilee slump in output.

GDP was 1.4% higher in the latest period than the same quarter a year ago, but this was partly attributed to last year’s Jubilee - when an extra bank holiday hit output.

Vicky Redwood, of Capital Economics, said: “Of course, we shouldn’t get too carried away. Even a 0.6% quarterly rise is fairly mediocre after such a deep recession and GDP is still 3.3% below its peak.

“And with households’ real pay still falling, bank lending flat and public sector austerity measures building, the economy may struggle to maintain its recent rate of growth in the second half of this year.

“Nonetheless, evidence is building that the economy is gradually getting back on its feet.”

Chris Williamson, chief economist at Markit, suggested the buoyant picture could put pressure on the Bank of England to consider tapering off the historically low interest rates and £375 billion quantitative easing (QE) programme that have nursed the economy through its worst period.

But others disagreed. Victoria Clarke of Investec predicted more QE or other stimulus measures being adopted next month since the growth rate was in line with expectations and the Bank has recently said the recovery is “weak by historical standards”.

Neil Bentley, deputy director-general of the CBI, said the figures confirmed Britain was on the road to recovery though there were likely to be “a few bumps ahead”.

He added: “Underlying conditions are quite weak as consumers are still saddled with debt and despite the global economy picking up, the potential for getting knocked off course remains.”

TUC general secretary Frances O’Grady said: “After years of bumping along the bottom, it’s encouraging to finally see some growth in the economy.

“But it’s a measure of how poor the economy is faring that this level of growth is being welcomed. We remain stuck in the slowest recovery for a century.”

Shadow chancellor Ed Balls said: “This economic growth is both welcome and long overdue. But families on middle and low incomes are still not seeing any recovery in their living standards.”