The Office of National Statistics said today that the UK economy shrank by a 'mere' 0.6% in the second quarter of this year – an improvement on the 0.7% contraction it had previously predicted, thanks largely to better-than-expected figures from the construction and manufacturing sectors. This will no doubt have delighted the Government, because it gives more credence to Alistair Darling’s prediction that the UK will start recovering before the year is out. But the sudden drop in new mortgage approvals, after ten months of consistent growth, probably paints a more realistic picture of the state of the economy...
Let’s start with the good news: this 0.6% fall in UK GDP (which is also 0.2% better than the very first ONS estimate, showing you how much guesswork these figures involve) was largely driven by a better showing from manufacturers, who reported a decline of just 0.1%, and the construction sector, whose output of -0.8% was way ahead of the -2.2% predicted. Sentiment does seem to be improving: the Evening Standard reckons that the third-quarter London commercial property figures, due out tomorrow, will show that the market has had its best quarter since the banking crisis. Recovering financial firms are looking to expand again, while the slow-down in building this year has constrained supply – pushing up rents. OK, so this may just be estate agents talking up their book, but it does sound plausible.
On the other hand, the limited recovery in the residential sector seems to have dried up: new mortgage approvals fell slightly for the first time in 10 months, to 52,317, while the Land Registry says that house prices dropped again in August. And really, this is no surprise – with unemployment still rising, and Britons still trying to pay down personal debt (which was up again last month, according to the ONS), it’s no wonder people aren’t buying houses. The recent rises been a lot to do with reduced supply; with the best will in the world, any recovery is going to be a long time coming.
Today’s figures probably do show that output has bottomed out, after the precipitous drops of the last year. And that should hopefully mean a recovery – albeit a fairly weedy one – isn’t too far away. Although before the Government gets too excited, it’s worth remembering two things: one, the peak-to-trough drop in output was 5.6%, meaning it’s just presided over the worst recession since the war. And two, the likes of Germany and Japan are already growing again. So it doesn’t have too much to shout about.
In today's bulletin:
Boost for Government, as Q2 'growth' better than expected?
Why is it always working women to blame?
Jessops survives - just - as HSBC takes pity on it
Editor's blog: The dangers of getting tough
Public sector cuts competition - who's won the bubbly?