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UK economic growth surprises
GDP data comes in ahead of expectations - what does it mean?
The big economic news item last week was the release of the third quarter GDP figures for the UK. The consensus amongst forecasters was that the growth rate would slow from +1.2% in Q2 to +0.4%. The growth rate did slow, but came in ahead of expectations, at +0.8%. That means GDP has grown +2.;8% in 12 months.
The news was warmly received by the Tory/Liberal government. It appeared to justify Coalition economic policies. However, a closer look and a moment's thought reveals a different picture.
A key surprise was the continued growth in construction (+0.4%) in the quarter, when it had been expected to go backwards following a strong rebound in Q2. Manufacturing grew as did services and government. The Office for National Statistics indicated the underlying growth rate was the same in both quarters. It is not yet clear why construction continued to grow - it could be due to ongoing government spending.
And here is the point we must get clear. Growth this year is largely due to Labour's economic plans, not George Osborne's. Osborne planned only an £8bn cut in the deficit this tax year compared to Labour and a chunk of that comes in a VAT increase from January. A figure of £8bn is large, but in the context of government finances, it is not that significant. This year's deficit had already been revised down from around £177bn to £154bn before the June budget - Labour's stimulus measures meant higher growth and higher tax revenue than had been expected. Labour's policy continues to set the context for economic performance.
The Coalition will claim that its announcements on budget policy and the expectation of spending cuts will have contributed to economic confidence. This is not clear however. Recent surveys of consumer and business confidence have not been encouraging, suggesting that austerity talk could undermine the long term confidence in the British economy. Moreover, while government bond yields are low (cost of government borrowing is low) these are at comparable levels to those seen under Labour towards the end of its last term.
All this combines to a difficult message for Labour to get across. But we need to make the case because the Coalition's assertions and flimsy policies will not hold sway in media and public attention forever.
Tribune has just published my latest article on Labour economic policy.
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Stephen Beer, 31/10/2010 |
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Aircraft carriers without aircraft?
The Financial Times today reports that the MOD has agreed, in the Spending Review, to keep Tornado aircraft but go ahead and scrap the Harriers. This means there will be some time before the two new aircraft carriers will have planes to fly from them. The Joint Strike Fighter will not be ready until 2018 and one carrier will act as a helicopter platform (a sort of large HMS Ocean I guess).
This does seem somewhat bizarre. The point of aircraft carriers is to be able to project force - the new Type 45 destroyers in turn will defend them from air attack. It seems very odd and unwise for the UK to be unable to launch air operations from the sea for some years, relying perhaps on other nations to defend its interests and territory. A key test is, can we respond effectively to a Falklands-style attack?
A cold reality of course is that our current aircraft carriers are often touring the world without planes (though with helicopters) and only receiving occasional visits from the joint strike force of Harriers. At least we have retained aircraft carrier capability to date. Yet, though there are severe budget pressures this government has made them worse for ideological reasons. That will have great social implications. It may also lead to a dereliction of a prime government duty which cannot be quickly reversed - national security.
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Stephen Beer, 16/10/2010 |
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That Labour leader's speech - 1960
The BBC has a current affairs programme available on iplayer from 5 October 1960. It documents the events of that day, when the Labour leadership lost a key vote and the conference voted for unilateral disarmament. The final ten minutes of the programme are on Hugh Gaitskell's famous and powerful speech declaring that he and others would 'fight fight and fight again to save the Party we love'.
It is a powerful speech even now. Gaitskell doesn't pull his punches and, in this segment at least, does not seem to try to tickle his audience into agreeing (he knew that, due especially to union votes long since decided, the NEC had lost the vote). On the contrary, facing a threat to his leadership, he demands to be heard (eg 'How wrong can you be? As wrong as you are about the attitude of the British people.') Facing heckles he continues his speech towards that famous line at the end. After he has sat down, amid uproar and applause, many delegates sing 'for he's a jolly good fellow.'
Also a matter of historical interest is the way delegates behind him continue to puff away at their cigarettes while he gives the speech of his life. The programme is only available for a day or two on iplayer.
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Stephen Beer, 03/10/2010 |
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