Friday, July 20, 2007

UK Economic Growth Unexpectedly Acclerates

According to ONS stats released today, UK Growth in the second quarter was 0.8%, up from 0.7% in the first quarter, faster than expected.

The rise is mainly down to manufacturing, mining, quarrying and energy increasing from the previous quarter. Services were slightly down, but as ever, business services and finance showed increased growth over the quarter. Government and other services grew a mere 0.1% compared to 0.5% in the first quarter. But who needs government services when business, finance and manufacturing are doing so well? More important may be the steadiness of growth. Since the last quarter of 2005, growth has been either 0.7% or 0.8% each quarter, remarkably even and steady.

Also encouraging was the trade figures released last week. As the graph shows, the trade deficit is narrowing. It was £3.5 billion in May, compared to £4.2billion in April and about £6.5 billion in May 2006. Simply, we are exporting more, (the improvement in the manufacturing figures above is related to this).

Not surprisingly, sterling rose against the dollar to $2.05 - the highest since mid 1981, 26 years ago. However the pound remained relatively stable against the euro (the euro-zone is our main export area, and the relative steadiness of the sterling-euro rate is the reason for our exports increasing). The markets are all abuzz about the prospects of another interest rate rise. I'm not quite so sure. Inflation is moderating and the good growth figures are mainly down to manufacturing and an improved trade deficit, while services moderated, indicating that the consumer is pulling in their horns - this rebalancing is exactly what the BoE wants.

Nervous eyes as always are cast across the Atlantic. The Americans are still struggling with their sub-prime mortgage scandal. And they are still a huge economy with the capacity to destabalise the rest of the world. Thankfully though, the euro-zone has come out of it's extended trough, and as we are Europeans and EU members, we are more dependant on Europe than America. As long as Germany continues to motor we might escape contagion from the American crisis, fingers crossed. All-in-all it's not a bad place to be in the 11th year of a Labour government.


jams o donnell said...

10 years of Labour government and not a single recession? This is an outrage! If the tories ahd been in power we would be well on our way to a second major recession!

Seriously, 10 years of economic stability has been the best thing Blair and Brown have given this country

Anonymous said...

Erm, yes all well and good until the recession, because due to the theory of the economic cycle it will inevitably come, it will hit harder and badder than ever. In reality its already begun, repossesions have began to increase and the countries total personal and government debt its astronomical! We need stability but this just isnt it. (Blair invaded Iraq...enough said)

Anonymous said...

Mind if I use your graph for my economics coursework please?