GDP figures are good but don’t get too excited

Sean O'Grady

Let’s not get too excited about those admittedly very encouraging GDP growth figures. First, there was always going to be an element of bounceback. Bounceback from the bad weather in the first part of the year, and, more significantly a bounceback in firms building up their much-depleted stocks, what economist call the “inventory cycle”, which exaggerates things on the way down and on the way up.

Moreover, much of the boost came from the last Government’s spending spree and the extraordinary stimulus to the economy the Bank of England offered, with 0.5 per cent Bank rate and a £200bn direct injection of money into the economy, the so-called “quantitative easing” programme. Plus approaching £1 trillion in special loans, guarantees and capital injections to the banks.

As we all know, the boost from government spending is now being reversed, and there is at least a chance that the bank may follow suit, given the way inflation is still way above target and will be for the whole of next year, according to the Bank’s chief economist (who told The Independent that in an interview this week). The banks are being told to find their own funding, and the outlook for lending is poor.

Looking ahead there is every reason to think we will follow the path the US has trailed – robust growth based on injections of cash form the authorities but, as soon as that starts to disappear, growth stalling.

This may be as good as it gets.

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  • will

    I agree the construction industry fell into a hole when the bad weather hit.

    PS. Disqus will not load on the main article.

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