Figures released by the Office for National Statistics (ONS) today showed the British economy grew by 1 percent in the Third Quarter. This was significantly higher than the 0.6 percent expected by most. It is the biggest quarterly increase since mid 2007 and, along with the drop in youth unemployment, comes as a very welcome relief to Cameron and Osborne.
As always though, the devil is in the detail.
The Service Sector, which accounts for three quarters of the economy, was responsible for much of the rise, growing by 1.3 percent, following 0.1 percent dip in Q2. Although welcome, it doesn’t sit well with the Coalitions pledge to ‘rebalance’ the economy.
Labour and even the BBC have been quick to point to the unusually busy summer, with the Jubilee and Olympic Games boosting figures. There may be some veracity to this as it transpires that figures for Olympic ticket sales were included, despite the transactions happening last year. The figures are especially uncomfortable for Ed Milliband who last week spoke at a TUC organized demonstration and proclaimed that austerity wasn’t working.
The new comes in contrast to the figures from the Eurozone.
Despite the cutting interest rates to record lows of 0.75 percent, the ECB reported that loans to non-financial corporations shrank by 1.4 percent year on year in September, double the previous month.
The Eurozone shrank 0.2 percent in the Second Quarter of 2012, with the outlook negative.
The US for its part seems to be on the mend….ish.
Ben Bernake, head of the Federal Reserve, said there would be no change in the policy of buying $40 billion of mortgage debt each month in an effort to kick-start consumer spending. The policy seems to be working. New US single family home sales surged in September, the highest rate for two and a half years.
Home buying has been helped by modest job gains, increased job security, and record low mortgage rates. The current average rate is at its lowest since 1971.
Although Britain’s largest single trading partner is the US, it is terribly exposed to chill winds from Europe. Today’s figures are encouraging, but debt financed growth in the US is, by definition unsustainable, and with Eurozone unwilling and unable to introduce the structural reforms it needs the economic future is by no means secured.