UK output increases by 0.5 per cent
Real GDP quarterly growth
Forget interest rate rises in the near future, that is the underlining message of the figures on Gross Domestic Product (GDP) just published.
The Bank of England cannot yet raise the interest rate despite inflation running at twice the government’s target at 4 per cent because the economy is still in a fragile state. So an interest rate rise is unlikely until November at the earliest.
Although the GDP increased by 0.5 per cent, growth was held back by construction suffering a sharp drop. Construction output decreased by 4.7 per cent in the first quarter, compared with a decrease of 2.3 per cent in the previous quarter. The state of the construction industry is an useful indicator of whether there is confidence in the economy.
Looking at the figures output in the UK economy has not improved for three straight quarters. This plateau shows that the economy has barely grown since September and is certainly lagging behind other leading economies.
On a more optimistic note manufacturing increased by 1.1 per cent compared with a similar increase of 1.1 per cent in the previous quarter. This tends to confirm the CBI’s industrial trends survey of 451 manufacturers published yesterday. Of the 451 manufacturers that responded to the survey, 36% said they had seen an increase in output in the last three months, while 15% said it had fallen, giving a rounded balance of +20%.’¨
However, despite these positive results the Monthly data from the survey showed 21% of manufacturers said that total order books were above normal, while 31% said that they were below. The resulting rounded balance of -11% is down on March (+5%). Which is again a worry that the bounce that we would expect in a recovering economy is just not there.
Overall the figures are mixed but significantly they are well below the Office of Budget Responsibility(OBR) prediction that the economy would grow by 0.8 per cent in the quarter.
This lacklustre performance of the economy raises serious concern whether the Government’s deficit busting austerity measures is the right cause for the economy.
Of all the parties fighting the Welsh general election Plaid Cymru’s economic policy would be the most relevant to dealing with these fragile economic figures.
Their much criticised proposal to raise money for their Build4Wales company to invest in hospitals, schools, housing and transport would seem to be the correct medicine to stimulate the economy.
For surely a classical Keynesian response to such low/no growth is exactly what the economic doctor should be prescribing. None of the other Welsh parties have come up with such radical medicine.