Economy jumps past pre-crisis peak but we’re not out of the woods yet

25th July 2014


The UK economy has grown 0.8% in the last three months taking it back to its pre-recession peak but economists are wary of underlying weakness.

Official figures released today shows gross domestic product (GDP), which measures the goods and services created within a country over a given time to determine whether the country is growing or contracting, is up 0.8% in the second quarter.

This means the economy has moved past its pre-financial crisis level and is estimated to be 0.2% above the peak last seen in 2008, according to the Office of National Statistics (ONS).

Year-on-year, GDP was 3.1% higher in the second quarter of this year than in the same period in 2013.

The ONS said the increase was due to a 1% increase in output in services and 0.4%% in production. However, output reduced by 0.5% in construction and 0.2% in agriculture.

Despite the good news, Ben Brettell, senior economist at Hargreaves Lansdown, said the positive figures hid on-going weakness in the economy.

‘The UK economy isn’t as strong as it looks. While it has surpassed its pre-crisis peak in absolute terms, a larger populations means GDP per capita is around 6% lower,’ he said. ‘The economy has been growing by adding jobs, but there is an underlying issue with productivity, and this is why we are not seeing any meaningful increase in wages. Despite another upgraded forecast from the International Monetary Fund, I believe significant challenges lie ahead.’

He noted in particular a slowing in output in the second half of the year and the risk of a destabilising oil price spike due to unrest in the Middle East and Ukraine.

How it effects you

Wealth Horizon chief executive Chris Williams echoed the concerns of Brettell and said consumers should look at their personal budgets.

‘The latest GDP growth figures are encouraging and suggest both the recovery and the economy now seem to be more sustainable,’ he said. ‘However, for the majority of the population, real living standards still fall short of their pre-crisis levels. Families are still working hard to repair personal balance sheets and young and old have been affected by high living costs and low interest rates on savings.

‘Now could be a good time to reflect on the progress that has been made on a personal and economic level. Key to this will be not to get carried away and to continue the new ethos of saving over spending.’

Brettell added that there is still a ‘substantial consumer debt burden’ with outstanding personal debt at £1.445 trillion at the end of May, up from £1.425 trillion a year earlier.

‘It is this level of indebtedness, combined with the lack of wage growth, which I believe will deter the Bank of England from raising interest rates in the near term,’ he said.

‘Research suggests that for every 0.25% increase in the average mortgage rate, the average household’s disposable income falls by about 1.25%. I don’t believe the economy is strong enough yet to battle that kind of headwind.’





Leave a Reply

Your email address will not be published. Required fields are marked *