Timely growth
The Office for National Statistics (ONS) has released its preliminary estimate for Q3 UK GDP (gross domestic product). It estimates the national economy grew by 0.8 percent in the quarter which, while down on the 1.2 percent Q2 figure, is still double many estimates and represents a 2.8 percent year-on-year growth.
This is good news for several reasons. Firstly, and most importantly, it will considerably reduce fears of a double-dip recession, as the growth of the preceding quarter is shown to be no one-off. In fact, the ONS report reckons the Q2 figure was artificially raised by 50 percent as people started spending again following bad weather in Q1, so Q3 was actually the same as Q2. Strange logic, but there you go.
The reason it's especially good news is that we've got some pretty big bills to pay. The austerity measures introduced by the government last week to make our public sector slightly less profligate will have a negative effect on GDP - at least in the short term - as the public sector spends less, unemployment rises, and we might even get the kind of selfish industrial action France has had to endure for the past week.
Many politicians and commentators who still cling to Keynesian dogma that apparently sees no limit to the extent the state can borrow will have their arguments further weakened by this news. They were concerned that the government was cutting public spending too much, too quickly and as a result would send us back into recession. That now seems less likely.
This news also has an effect on currency. With interest rates already at rock-bottom the main weapon at the Bank of England's disposal if it feels the economy needs a boost is quantitative easing (QE) - effectively injecting fresh money into the economy. While this technically increases the amount of cash in circulation, it weakens the currency. The decreased likelihood of QE2 has sent the pound up around a percent against most other currencies this morning.
Looking at the breakdown, construction is seeing some surprisingly robust growth, given the state of the property market. As ever, services - especially finance - were the biggest contributors to growth, but it's worth noting that manufacturing has now grown every quarter for a year.
