GDP grows 0.8% but still 2.5% below 2008 peak

The Office for National Statistics (ONS) has released 3rd quarter 2013 Gross Domestic Product GDP figures showing the economy has grown by 0.8%.

However the Bank of England remain cautious and do not predict this necessitating an interest rate rise in 2014 with economic conditions unlikely to improve enough to worry the long term target of a sustained 2% annual growth.

In fact the economy as a whole is still 2.5% below the productivity levels achieved in the first quarter of 2008 and with inflation consistently running higher than wage  increases it is unlikely that this growth will cause domestic demand lead inflation, which is the real concern that could affect the Base rate.

House Builders production has grown by 0.5%, but as construction was the hardest hit industry by the recession the level of new homes being built is still 12.8% down and being propped up by the Government’s Help to Buy scheme.

Interestingly the services sector, which represents three-quarters of economic output, grew by 0.7% and is now 0.6% above its previous peak. This just shows how hard other sectors of the economy have been hit by the credit crisis.

Summary of the ONS data:

• Change in gross domestic product (GDP) is the main indicator of economic growth. GDP increased by 0.8% in Q3 2013 compared with Q2 2013.
• Output increased in all four main industrial groupings within the economy in Q3 2013 compared with Q2 2013. Output increased by 1.4% in agriculture, 0.5% in production, 2.5% in construction, and 0.7% in services. Output from services is now slightly above its previous peak in Q1 2008, prior to the economic downturn.
• In Q3 2013 GDP was estimated to be 2.5% below the peak in Q1 2008. From peak to trough in 2009, the economy shrank by 7.2%.
• GDP was 1.5% higher in Q3 2013 compared with the same quarter a year ago. Remember that the Olympics and Paralympics took place during Q3 2012, raising the level of GDP in this quarter.
• The preliminary estimate of GDP is produced using the output approach to measuring GDP. At this stage, data content is less than half of the total required for the final output estimate. The estimate is subject to revision as more data become available, but these are typically small between the preliminary and third estimates of GDP. All figures in this release are seasonally adjusted.

Graeme Leach, the Institute of Directors chief economist said: “The outlook looks better than at any time since the onset of the financial crisis. Indeed, our members have more confidence in the economy than at any time since 2008.

However, strong headwinds remain and the annual growth rate year on year is nothing to get too excited about yet. Though inflationary pressures are likely to remain benign, debt and inflation are rising faster than earnings.

By far the biggest challenges remain on the supply side, not the demand side. Supply side constraints mean that the current growth spurt is unlikely to extend beyond next year. This stage of our economic recovery is likely to be short and sweet, instead of long and strong.”

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