Saturday, 26 July 2014

GDP milestone

The news that the UK economy had expanded to a level slightly above that of the 2008 peak was confirmation of the confidence created by the coalition government in 2010. It is not the end of the story, though. This comment on the Guardian blog on the matter is typical of the warnings:

Rob Wood, economist at Berenberg, agrees that growth was "not balanced this quarter":
The service sector (+1.0%) was strong while manufacturing (+0.2%) and construction (-0.5%) were weak. The longer the recovery remains unbalanced the less sustainable it may seem to aim for growth continuing around these rates.
That being said, manufacturing and construction suffered from an usually weak May and could bounce back strongly in June and through Q3
Manufacturing data from other European countries was also weak in May, suggesting the global economy had a hiccup.

Besides the continuing over-dependence on the service sector, wages are stubbornly refusing to rise as they have in previous periods when unemployment fell. This has two bad effects on the budget deficit: benefits to the low-paid continue to flow, where they would normally taper off, and the increased tax take from "wage push" has not materialised. This is presumably a factor in the unexpectedly high figure for government borrowing.

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