Back to Square One

The latest figures from the Office of National Statistics (ONS) show that the economy is finally breaking new ground.


The graph appears to say it all. Adjusted for inflation, the UK economy has at last outgrown the peak established in the first quarter of 2008. The Government hailed the figures as proof their policies were working, while others pointed to the six wasted years since the crash took hold. Either way, it was a very slow recovery (25 quarters) from a very deep recession (7.2% peak to trough). As the Office for National Statistics points out, even the impact of the 1979-1981 recession (5.9% peak to trough) was overtaken after 16 quarters. 

Dig a little deeper into the numbers and the recovery has not taken the form hoped for by the Government and Bank of England. For all the talk of re-balancing the economy, it is the service sector which has driven the recovery. That sector is now 3% larger than in the first quarter of 2008, while the other three main sectors have all shrunk. Both the construction and production sectors are still over 10% smaller than six years ago. 

The wrong type of growth is, as any politician will tell you, better than no growth. However, the weakness of the production and construction sectors – the latter fell 0.5% in the second quarter of 2014 – will weigh on the Bank of England as it moves ever nearer the point when it raises interest rates. 

5th September 2014