Graeme Wearden and Nick Fletcher 

UK economy finally above pre-crisis peak, as GDP rises by 0.8% in Q2 – business live

Live coverage of the latest GDP data, showing that the UK economy is, at long last, larger than in 2008
  
  

George Osborne, saying the hard work of the British people helped the UK economy to hit its pre-crisis peak.

And finally over to Greece where the battle to stop Sunday Shopping reached new heights as the case was taken to the country’s highest court. Our correspondent Helena Smith writes:

The battle to stop what is taken for granted in most western economies – Sunday shopping – entered a new phase after federations representing thousands of shop owners, private employees and other tradesman resorted to the Council of State arguing that the court should declare the new law “anti-constitutional.”

Under pressure from the EU, ECB and IMF – the creditors who have bailed out the country to the tune of €240bn – the Greek government lifted the ban on Sunday shopping earlier this month.

Prime minister Antonis Samaras’ conservative-dominated coalition argues that deregulation of trading hours will help ease record levels of unemployment while increasing competition.

But appealing to the court, employees and shopkeepers in both Athens and Thessaloniki countered that the new law – which mandates that shops open in ten tourist regions across Greece – contravenes European legislation. Moreover, they said, it violated the Geneva Human Rights convention which stipulates that workers enjoy a day of rest on Sunday. “It is exceptionally harmful for [all involved] as the competition will force employees to work the one day of the week that they had off,” lawyers argued.

The protestors responded to the first Sunday of liberalized shopping by going on strike – a move that is expected to be repeated in the weeks ahead.

Small shop owners – already hit by higher utility bills and soaring taxes - insist that liberalization will favour big monopolies and other chain stores at a time when few can afford to hire extra personnel.

After six straight years of recession – and with liquidity still at chronically low levels - most store staff have not been paid in months.

And on that note, it's time to close for the evening. Thanks for all your comments, and we'll be back on Monday.

Updated

European shares end lower

After another volatile week, with investors unsettled by the continuing geopolitical tensions, leading shares fell back once more ahead of the weekend. Nervousness about Ukraine and the violence in Gaza dampened sentiment again, while on the corporate front disappointing results from Amazon and Visa helped send US shares lower. The final scores showed:

  • The FTSE 100 finished down 29.91 points or 0.44% at 6791.55
  • Germany's Dax dropped 1.53% to 9644.01
  • France's Cac closed 1.82% lower at 4330.55
  • Italy's FTSE MIB lost 0.9% to 21,063.31
  • But Spain's Ibex ended 0.25% higher at 10,888.1

Over on Wall Street, the Dow Jones Industrial Average is currently down 126 points or 0.74%.

Updated

And does the good news on GDP make the UK public feel better off? Apparently not...

Updated

Back with UK GDP, and foreign exchange specialist Monex has warned against complacency (echoing Ed Balls earlier) despite the economy finally rising above the pre-crisis peak. Monex head of market analysis Eimear Daly said:

The danger is that with the return of stellar growth, complacency may have set in, and details of the report show early signs that the UK is falling back into old habits.

The greatest contributor to UK output was the services sector, expanding at an impressive 1%. Historically, the UK has depended on business services, which continues to power the economy. This wouldn't be such a concern if it weren’t for an outright fall in agriculture and construction output, and even a slip in manufacturing growth in the quarter.

Despite the impressive headlines, the UK needs to remain vigilant to keep this recovery on track. A top scoring services sector that creates impressive UK growth rates doesn’t mean we can neglect the other sectors of the economy.

The overall UK economy may have finally recovered from 2008, but the manufacturing and construction sectors remain much smaller than their pre-crisis level. The UK is at risk of forgetting the lessons of the crisis and depending all too heavily on services, especially financial, and leaving us at the mercy of the unpredictable financial markets.

Updated

Wall Street has opened sharply lower, with the Dow Jones Industrial Average down around 90 points or 0.5% and the S&P 500 off 7 points or 0.35% in early trading.

Disappointing earnings from Amazon, whose shares are down 11%, and Visa, 4% lower, have contributed to the decline.

Updated

The US durable goods figures could be a - mildly - positive sign for next week's GDP figures, said Rob Carnell at ING Bank:

US Durable goods orders for June were slightly better than anticipated.... And this was largely the same story for the various core measures stripping out volatile transport and defence items.

Ahead of next week’s second quarter 2014 US GDP release, these figures take on added importance. And perhaps suggest a slightly stronger figure than the consensus 3.0% number (INGf forecast 4.6%). Moreover, the 3 month trend for core capital goods orders moved up to a respectable 6.7% (up from 4.1% in March), though it is not clear whether this or the capital goods shipments figure is the better indicator for business equipment investment. In any case, both strengthened a little from March.

That said, it is another part of the investment category – inventories, which we believe will be the main distinguishing feature between ours, and the consensus forecast. Consequently, today’s figures should not have a sizeable impact on market GDP expectations in advance of next week’s figures.

Over to the US where durable goods orders for June came in better than expected.

The commerce department recorded a rise of 0.7% in longer lasting items such as machinery and electronic products and compared to forecasts of 0.5%. May’s figure of -0.9% was revised upwards to -1.0%

Aircraft parts showed the biggest rise at 15.3% but car parts orders fell 13.9%.

Non-defence orders excluding aircraft rose 1.4% after a downwardly revised 1.2% fall in May.

Updated

GDP: what we've learned

Time for a quick recap, with links to the main points in the blog.

Britain has finally recovered all the output lost in the Great Recession, but MPs on all sides of the political divide say there is more to do to repair the economy.

The Office for National Statistics reported this morning that UK GDP grew by 0.8% in April-June, confirming that Britain is growing much faster than its rivals this year.

Finally, GDP is above the level reached in the first three months of 2008.

But the growth wasn't very balanced - the service sector expanded by 1.0%, but industy only grew by 0.4% and both agriculture and construction shrunk.

Chancellor George Osborne says:

Thanks to the hard work of the British people, today we reach a major milestone in our long term economic plan.

“But 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."

While shadow chancellor Ed Balls points out that the UK is three years behind other many other advanced nations:

“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.

“Wages after inflation are down over £1,600 a year since 2010, housebuilding under this government is at its lowest level since the 1920s and business investment is lagging behind our competitors.

And the Green party have called for a major shake-up of the UK's 'broken' economy.

Many economists have pointed out that the UK economy is still a long way from its 2008 peak when measured in terms of GDO per capita.

Full analyst reaction starts here.

Larry Elliott, our economics editor, says the chancellor is right to avoid smugness, given the bumpy road to get here.

And writing in Comment is Free, Michael Burke argues that other economic figures show that Britain has NOT recovered.

More workers should mean increased output. Yet while there are 180,000 more people in work than when the recession began, output is only now a fraction above its pre-recession starting point. And there is an increase of nearly 750,000 people who are economically inactive; that is unemployed, discouraged from work, retired early and so on.

Jobs are being created, but not on the scale required to keep up with a growing workforce. This is six years of stagnation, not recovery. There is too a glaring problem with the nature of the jobs created under this government. It amounts to a farcical repeat of Thatcherite economic history. Over 100,000 estate agent and related new jobs have been created under the coalition, more than double the combined total for new manufacturing and construction jobs created over the same period.

The grotesque merry-go-round of more people selling fewer overpriced homes is in full swing. Meanwhile, industrial production is back to levels first since in the beginning of 1988.

And with that I'll hand over to my colleague Nick Fletcher. Have a good weekend all.

Updated

Green Parry: The economic model is still broken

Amid the flurry of data, reaction and charts, we haven't really touched on the wider question -- whether GDP is a good measure of economic well-being at all.

Natalie Bennett, Green Party leader, has now flagged up some of the key concerns.

One is the continued importance of Britain's financial sector, nearly years after the collapse of Lehman Brothers.

As Bennett warns that the UK economy remains unbalanced:

With the International Bank of Settlements, among many others, warning about the continued extreme fragility of the international financial sector of which the City of London is a notable risk-heavy and fraud-laden part, with an economy in which 20% of workers are on less than a living wage, millions working fewer hours than they'd like and households struggling to meet basic bills, there's no sign of real economic change.

The Greens argue that Britain's "broken economic model" needs to change, with less focus on consumption and less power for multinationals.

Bennett says:

"Today it's important to re-state that we need to transform it so that it works for the common good, not for the good of the few, within the limits of our one planet.

"We need to bring manufacturing and food production back to Britain, restore strong local economies built on small businesses and cooperatives. That means forcing multinational companies to behave like decent corporate systems - paying their way with tax and decent wages and conditions, and reining in our financial sector."

"And we need a massive cut in our use of the limited physical resources of this planet, along the lines of, but going much further, than that proposed this week by the Environmental Audit Committee report on the circular economy."

That report, online here, warned that the government isn't giving enough leadership on the issue and that Britain could learn a lot from Japan.

10 things you need to know about MP's report on circular economy

The first quarter of 2008 was also the time in which Northern Rock, stricken by the credit crunch, was formally nationalised by the Labour government.

Northern Rock was later sold to Virgin Money. And today, they've announced they are creating 200 new jobs this year, including 120 in the North East.

The announcement coincides with George Osborne's trip to Newcastle today.

Updated

Here's a video clip of George Osborne explaining how Britain hasn't completed the task of recovering from the Great Recession.

Read the news story here

Rather than trudging back to 9.30am, new readers might prefer to read our news story on today's growth figures:

GDP surpasses pre-recession high as economic growth hits 0.8%

Larry Elliott: Chancellor is right not to be smug

Our economics editor, Larry Elliott, says the chancellor is wise to resist crowing today (as I flagged up earlier, George Osborne tweeted that there's still "a long way to go" to complete the recovery).

Larry writes:

For one thing, this has been the mother and father of a recession and it has taken far longer than Osborne expected for the economy to respond to the Bank of England's cheap money medicine.

There have been four deep downturns since the second world war; two presided over by Labour governments, two by Conservative. After the first oil shock in the mid-1970s, it took 12 quarters for the economy to return finally to its pre-recession level of output; after the recession in Margaret Thatcher's first term it took 16 quarters; after the recession following the Lawson boom of the late 1980s its took 10 quarters. This time it has taken 25 quarters.

The second reason it makes sense for Osborne not to crow too much is that in terms of output per head of population, the downturn is still not over. The population has risen since the economy went into recession in early 2008 and at the current rate it will be 2017 or 2018 before the losses in per capita GDP are made up.

More here: George Osborne is right not to be smug over GDP numbers

Updated

Unions are flagging up up that most people are not feeling the recovery in their pocket:

Wage growth, or rather the lack of it, is one of the clearest signs that Britain's recovery isn't feeding through to the workers.

Pay rises have been lagging behind inflation since the crisis began, and hit their lowest level since 2001 in the three months to May (at just +0.7%).

Today's GDP report is only the first stab at assessing the UK economy's performance in the second quarter of 2014.

It doesn't actually contain any data from June at all -- the Office for National Statistics just estimates how the various sectors performed, based on history and the data from April and May.

John Bulford, economic advisor to the EY ITEM Club, reckons the 0.8% growth reading could be revised up next month:

The disparity between official figures, which show manufacturing output growing by just 0.2% and construction contracting by 0.5%, and business survey data, which show both sectors roaring ahead, is glaring. With that in mind, it would not be a surprise to see the Q2 figures revised up in the next release in mid-August.”

Guess who had another 'helpful suggestion'....

Updated

Ben Chu has pulled together another great chart, showing how Britain's GDP per capita (economic size divided by the total population) has also lagged most of the G7 group of advanced economies since 2008.

Updated

Chart: How Britain lagged the G7 since 2008

Italy is the only member of the G7 to have recorded slower growth than the UK since the first quarter of 2008

That was the time when the credit crunch was transforming into the biggest financial crisis to grip the world since the Great Depression.

Ben Chu of the Independent has helpfully tweeted this chart to show it:

At which point, the Conservative team at the Treasury suggested he might like to rescale it to 2010 (when the coalition took power).

Better, but still not top of the class...

Guy Ellison at Investec Wealth & Investment, says Britain's recovery has been "a long slog":

The UK is the second to last member of the G7 group of economies to reach the milestone and took much longer to rebound than in past recessions.

Geraint Johnes, director at Lancaster University’s Work Foundation, has rubbished the notion that today's growth figures are a triumph for George Osborne's austerity programme.

After all, the chancellor did (sensibly) drop the idea of eliminating the deficit in this parliament after it became clear that he was spiralling off course.

Johnes says:

“What do the figures say about the effectiveness of austerity and the management of the economy? The Chancellor's actions trump his rhetoric. Austerity was effectively abandoned a couple of years ago, and the economy has flourished - albeit in patches - since.

And next year's growth is unlikely to match the "rather remarkable results" being achieved at present, Johnes adds.

Updated

Summary

Rob Wood, economist at Berenberg, agrees that growth was "not balanced this quarter":

The service sector (+1.0%) was strong while manufacturing (+0.2%) and construction (-0.5%) were weak. The longer the recovery remains unbalanced the less sustainable it may seem to aim for growth continuing around these rates.

That being said, manufacturing and construction suffered from an usually weak May and could bounce back strongly in June and through Q3

Manufacturing data from other European countries was also weak in May, suggesting the global economy had a hiccup.

A lot of people are hammering home the fact that the UK's recovery has been the slowest in living memory.

This tweet from RBS shows the tortoise-like nature of the rebound:

And the FT explains just how badly it compares it to previous recessions over the last 100 years:

Ed Balls: GDP per head won't recover till 2017

Better late than never, George.

That broadly sums up Ed Balls' response to the GDP data, who points out that America's economy hit its pre-crisis peak back in 2011.

The shadow chancellor says:

“At long last our economy is back to the size it was before the global banking crisis – three years after the US reached the same point.

“But 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."

Balls adds that Labour measures, such as more free childcare and a 10p starting rate of tax, will make the recovery fairer. More here.

Jeremy Cook, chief economist at currency company World First, says the recovery is "engendered, sustainable and flourishing".

“Once again, it was services that drove the economy onwards, rising by 1%. Construction slipped back in Q2, falling by 0.5% following a strong Q1 helped by home building and repair efforts to flooded properties in the west country.

“Industrial production rose 0.4%. The recession prompted a renewal of the phrase “Keep Calm and Carry On” and all in the UK will be hoping that this expansion does just that.”


Simon Baptist, of the Economist Intelligence Unit, points out that the recovery has been "notable for its extremely slow pace":

Austerity in this parliament has been a drag on growth.

Markets needed to see a long term plan to big ticket items like pensions, healthcare and welfare spending; the government has done some of this for which it deserves credit, but growth now is in spite of austerity not because of it.

GDP reaction starts here

Ben Brettell, senior economist at Hargreaves Lansdown, warns that the UK economy "isn't as strong as it looks".

He also points out that GDP per person is still lagging (check out this chart)

While it has surpassed its pre-crisis peak in absolute terms, a larger population means GDP per capita is around 6% lower. The economy has been growing by adding jobs, but there is an underlying issue with productivity, and this is why we are not seeing any meaningful increase in wages.

Despite another upgraded growth forecast from the IMF I believe significant challenges lie ahead.

Don't forget, GDP per capita is still below 2008 peak

I flagged this up earlier, but it really can't be repeated too many times:

Britain's GDP per person is nowhere near the level it reached before the recession.

The ONS hasn't issued a new estimate today but, based on earlier data, GDP per capita is probably at least 5% smaller than in 2008.

Updated

The Liberal Democrats want their share of the credit, declaring that they have "cleared up Labour’s economic mess".

Lib Dem Treasury Minister Danny Alexander says Britain has passed a major milestone today.

“The main reason that we stepped forward to form the coalition was to sort out Labour’s economic mess and rebuild a stronger economy and a fairer society for the future.

“By forming the coalition we gave the country a long term economic recovery plan based on Liberal Democrat values and policies and the stability to see it through."

George Osborne: we've got a long way to go

Chancellor George Osborne is touring the North of England today – designed to show that the government takes regional regeneration seriously.

He's tweeting from Newcastle:

Britain's manufacturing sector didn't enjoy a blowout quarter -- its activity expanded by just 0.2% in the April-June quarter, down from 1.5% in January-March.

The key chart: GDP finally over pre-crisis peak

And here's confirmation that the 0.8% growth in the last quarter was almost totally due to the service sector (which makes up around three-quarters of the economy)

Britain's agriculture sector also shrank during the quarter, by 0.2%.

On an annual basis, the UK economy is 3.1% bigger than a year ago.

The construction sector contracted during the quarter - with its output shrinking by 0.5%.

Britain's industrial sector grew by just 0.4% in the quarter, a slowdown compared to the 0.7% in Q1.

Britain's service sector continues to drive the recovery.

It expanded by 1.0% between April and June, which is the strongest growth since the third quarter of 2012.

The Office for National Statistics confirms that the UK economy is now 0.2% larger than at the previous peak, in the first three months of 2008.

UK economy grew by 0.8% in second quarter of 2014

Here we go! The UK economy grew by 0.8% in the second quarter of this year.

That's means Britain's GDP is finally above the previous peak set in 2008.

Lots more detail and reaction to follow...

Ed Balls has rather pre-empted today's growth figures, in an article in today's Guardian.

In it, the shadow chancellor argues that there's no cause for complacent celebrations, just because GDP has reached its pre-crisis levels (assuming it does....)

Not only is it two years later than the chancellor’s original plan said, and three years after the US reached the same point, it’s also the case that GDP per head won’t recover to where it was for around another three years – in other words, a lost decade for living standards.

Conservative complacency won’t help working people

Just over 20 minutes to wait until we learn how fast the UK economy grew in the second quarter of 2014.

Paul Hollingsworth of Capital Economics says it will be "another milestone for the recovery", if GDP comes in at +0.8% as expected, 0.2% above the 2008 previous peak.

GDP per capita still lagging behind

There's a very important reason to be cautious about today's growth numbers, which explains why many people don't feel the benefits of the recovery.

GDP per capita (ie, the amount of economic output divided by the number of people in Britain) is still more than 5% below the pre-crisis peak.

As the ONS said this month, "GDP per head has recovered relatively slowly since 2009", and was 5.6%. This chart confirms it:

Tax campaigner Richard Murphy comments:

And that means almost everyone in this country is still worse off than they were in 2008. That’s nothing for the government to celebrate.

Lloyds close to Libor deal

RBS isn't the only bank tackling "conduct and litigation issues", of course.

Its UK rival, Lloyds Banking Group, has confirmed this morning that it is close to reaching a settlement over its role in Libor-rigging.

This is the scandal in which traders allegedly conspired to fix benchmark interest rates that underpin many financial markets. Lloyds is expected to pay a fine of £200-£300m.

Updated

Today's GDP figures should also show that the UK economy has grown for the last six quarters -- the longest sustained run of rising output since 2008.

RBS shares surge 12% after rushing out better-than-expected results

Royal Bank of Scotland has surprised the City by rushing out its results a week early, in the latest sign that conditions are improving in the UK economy.

RBS, which was rescued by the taxpayer after the great recession struck, has reported an unexpected rise in pre-tax profits, thanks to a fall in bad loans and a general improvement in economic conditions.

Shares surged by over 12% when trading began in London, even though CEO Ross McEwan cautioned that it still faces a number of "conduct and litigation issues".

Here's our full story:

RBS reports largest profits since bailout as share price soars

To hit its pre-crisis peak, UK GDP must have risen by at least 0.6% in the last quarter, I reckon.

Most economic data from April, May and June has suggested that growth remained quite strong, which is why economists expect GDP to have risen by 0.8% or 0.9%.

The slowest recovery since at least 1920

It's wise to be cautious when economists talk about X or Y being the best or worst 'on record'.

Reliable statistics don't go back terribly far -- for example, the central bankers faced with the Great Depression were hampered by limited knowledge about how their economies were faring*.

But it's clear that this UK recovery has been the slowest in at least 100 years.

This graph from the NEISR thinktank (which includes their estimate for today's GDP data) compares the last six recessions, going back to 1920.

* - the excellent Lords of Finance explains this well.

UK growth figures to show state of the recovery

Good morning.

After the longest downturn in recent UK economic history, has Britain's economy finally returned to the levels before the 2008 financial crisis?

Economists think so, and we'll find out for sure at 9.30am this morning when the Office for National Statistics issues its first estimate of UK growth for the second quarter of 2014.

The ONS is expected to report that GDP expanded by 0.8% or 0.9% between April and June. That would match, or exceed, the growth seen in the first three months of this year, showing that the UK recovery continues to outpace other advanced economies.

And with an election just 10 months away, the figures are eagerly awaited in both Westminster and the City.

Just yesterday, the International Monetary Fund upgraded its forecast for UK growth again – it now expects GDP to rise by a punchy 3.2% this year. Good news for George Osborne.

IMF predicts Britain's GDP growth rate will surge to 3.2% by year end

But critics of the chancellor argue that Britain is enjoying another of those consumer-driven recoveries that have caused such trouble in the past.

So we'll be scrutinising today's data for evidence of whether the economy is really rebalancing, or not.

 

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