Belfast Telegraph

Thursday 25 December 2014

Cameron hails recovery 'milestone'

Britain is forecast to be the fastest growing major economy in 2014.
Britain is forecast to be the fastest growing major economy in 2014.

David Cameron hailed a "major milestone" in the recovery today as official figures showed Britain had finally emerged from its worst post-war downturn.

Gross domestic product (GDP) grew by 0.8% in the second quarter taking the size of the economy 0.2% above its pre-recession peak, figures from the Office for National Statistics (ONS) showed.

It marks the end of a period when GDP slumped to 7.2% below its pre-recession levels by the middle of 2009. The stuttering recovery did not take flight until last year when growth began to accelerate.

But Britain is now predicted to be the fastest growing major world economy in 2014. Yesterday the International Monetary Fund (IMF) raised its GDP forecast for the fourth time in a row to 3.2%.

The Prime Minister said: "It's encouraging news that the economy is larger than pre-crash levels. Our long term economic plan is working and this is a major milestone."

However, critics pointed to the continuing fall in real-terms wages as evidence that the benefits of recovery were not yet filtering through to households.

Meanwhile the ONS figures showed that while the dominant services sector continued to perform well, manufacturing and construction were still struggling.

Chancellor George Osborne said the return to the pre-crash peak was "thanks to the hard work of the British people".

But he added: "There is still a long way to go - the Great Recession was one of the deepest of any major economy and cost Britain six years."

"Now we owe it to hardworking taxpayers not to repeat the mistakes of the past and instead to continue with the plan that is delivering economic security and a brighter future for all."

Shadow chancellor Ed Balls said it had taken Britain three years longer than the US to return to its pre-crisis peak.

He added: "With GDP per head not set to recover for three more years and most people still seeing their living standards squeezed, this is no time for complacent claims that the economy is fixed."

Today's figures showed that GDP was 3.1% higher in the second quarter compared with the same period a year ago - the highest such year-on-year increase since the last quarter of 2007.

The 0.8% growth for the second quarter, which was widely forecast, was primarily driven by the powerhouse services sector, which accounts for three-quarters of output, and had already surpassed 2008 levels. It grew 1% in the quarter.

But manufacturing expanded by just 0.2% and remains 7.4% off the pre-crisis peak level while construction shrank 0.5% thanks to a weak May. It still lags 10.7% behind the level of six years ago.

Ben Brettell, senior economist at stockbrokers Hargreaves Lansdown, said: "The UK economy isn't as strong as it looks. While it has surpassed its pre-crisis peak in absolute terms, a larger population means GDP per capita is around 6% lower."

Samuel Tombs, of Capital Economics, said: "On most historical and international comparisons, the UK's recovery still looks fairly feeble.

"It only took a maximum of four years for output to return to its previous peak after all peacetime recessions in the 20th century. And the UK is the second-to-last G7 economy in which output has reached its pre-recession peak."

Howard Archer, chief UK and European economist at IHS Global Insight, said the robust growth "keeps open the possibility that the Bank of England could raise interest rates before the end of 2014" though this remained "a very close call".

Lee Hopley, chief economist at EEF, the manufacturers' organisation, said: "Policy-makers can't yet afford to take the summer off. We still have a hill to climb in building the right conditions for companies to invest in and, export from, the UK."

TUC general secretary Frances O'Grady said: "The economy may finally be back to where it was in early 2008 but pre-crash living standards are a long way off. Workers are still, on average, around £40 a week worse off."

Joe Grice, chief economic adviser at the ONS, said: "The economy has now shown significant growth in six consecutive quarters and the long climb back to the pre-crisis peak of 2008 has at last been completed.

"It is worth noting, however, that changes this autumn to the way countries measure their GDPs may yet modify our view of how slow the UK's recovery has been."

Today's figures were the last preliminary estimate of quarterly GDP to be published under the current national accounts framework, before changes to the methodology come into effect in September.

Some economists expect these to show that the economy surpassed its pre-crisis peak earlier.

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