Three things that could cause a headache for George Osborne

UK economic growth slowed more than expected in the three months to September, official figures have shown.

Chancellor George Osborne Photo: Hannah McKay/PA Wire
Chancellor George Osborne Photo: Hannah McKay/PA Wire

Analysts had forecast that growth would slow slightly from 0.7 per cent in the second quarter to 0.6 per cent in the third. However, figures from the Office for National Statistics (ONS) put third-quarter growth at just 0.5 per cent.

While lower than expected, it is nevertheless the 11th consecutive quarter of growth, and Chancellor George Osborne will no doubt point to the fact that the economy is now 12.3 per cent bigger than at the start of the last parliament.

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Today’s figures are only the first estimate of quarterly growth, and may well be revised up or down in the coming months as the ONS collects more data.

Mr Osborne has warned that more “tough decisions” will be required to keep the economy on track.

There are still a number of clouds on the economic horizon that could cause problems for Mr Osborne.

The first big issue is the hangover from the financial crisis of 2008. Earlier this week, a leading investor told The Yorkshire Post that the UK could face decades of low growth and difficult economic conditions.

Franklin Templeton investment director Colin Morton predicted the Bank of England could keep interest rates at historic lows for the next two years, as Britain’s recovery may have “peaked”.

Mr Morton also questioned the value of the ‘forward guidance’ provided since Bank of England governor Mark Carney took charge of the body, due to the “appalling” accuracy of the Bank’s predictions on rate rises.

Mr Morton, who heads up Franklin Templeton’s investment teams in Leeds, told The Yorkshire Post that the UK economy is unlikely to see a boost in the coming months.

He said: “We’re six or seven years into a deleveraging process which may last 25 years - a period of slower growth than we got used to pre-financial crisis.

“There’s still lots of debt out there. We’ve tried to sort things out but all we’ve really done is shuffle the pack.”

The second major concern relates to problems in global markets such as China. This was reflected in recent figures from EY which showed that profits warnings are on the rise both nationally and regionally.

The professional services firm revealed six quoted companies in Yorkshire and the North East issued warnings between July and September, compared with four in the previous quarter and three in Q3 2014.

Nationally, warnings also rose by a third compared with the second quarter, with 79 profit warnings in Q3.

Hunter Kelly, restructuring partner at EY in Yorkshire and the North East, said the region’s listed companies performed more in line with market expectations than the wider UK, as volatility in China, rumours of a US interest rate move and commodity supply and demand imbalances created uncertainty.

Thirdly, many firms are still struggling to find skilled staff. Yorkshire’s construction industry is facing its greatest skills crisis in almost 20 years, according to a survey released last week by RICS (Royal Institution of Chartered Surveyors).

The quarterly RICS UK Construction Survey shows that the skills shortage in Yorkshire and Humber has reached its highest levels since the survey was launched in 1998.

Simon Rubinsohn, the chief economist at RICS, said: “While it’s exciting to see that Yorkshire and Humber is experiencing growth across the construction sectors, future growth will only be sustainable if the growing skills crisis is addressed. The availability of both blue collar and white collar construction workers is reaching crisis point. We haven’t witnessed a labour shortage of its kind in nearly 20 years.

“Currently, while we know that there is a serious shortage of skills, we don’t yet know why we have seen such a dramatic drop in the labour market over the past five years.

“Part of the problem is the legacy of the collapse in the sector following the onset of the global financial crisis. Many professionals and other skilled workers chose to leave the industry and quite simply have not returned or been replaced.”