Growth was solid in the third quarter at 0.7% but the recovery has slowed given the 0.9% increase in GDP in the second quarter. George Osborne said the economy is at a “critical moment”, as the UK tries to fend off the threat posed by a weakening eurozone and heightened uncertainty in global markets. Here are six charts on the UK economy:
The path of recovery has been stable
Britain’s economy grew for a seventh successive quarter between July and September, further establishing recovery. Third quarter growth of 0.7% was slightly slower than the 0.9% achieved in the second quarter but the path of recovery has been relatively stable, as the chart above shows. The UK is outperforming its G7 peers, but there are mounting fears that a weak eurozone economy and geopolitical tensions will start to weigh on the domestic economy. The latest business surveys suggest the recovery might be losing steam. As a result – and with inflation low of 1.2% – economists do not expect the Bank of England to raise interest rates until the middle of 2015.
The services sector is leading growth
Growth in the third quarter was broad-based, with output increasing in services, construction, industrial production and agriculture. This chart shows the construction and production industries were hardest hit during the crisis, and the services sector, which accounts for about three-quarters of the economy, is leading the recovery. Although there has been growth across all sectors since the beginning of 2013, only the services sector is back above its pre-crisis peak. Recent survey data suggests recovery in UK manufacturing is slowing, partly as exports are hit by weaker demand from Europe - the UK’s main trading partner.
UK unemployment has fallen faster than expected
Unemployment has fallen faster than expected over the past year and the jobless rate is now at a six-year low of 6%. The number of unemployed people fell to 1.97 million between June and August, the first time below 2 million since late 2008. The chart above shows how resilient the UK jobs market was between 2009 and 2011, relative to the US and EU. However, a relatively low unemployment rate masks other developments in the labour market since the onset of the crisis, including a sharp rise in self-employment, and people taking on part-time roles when full-time work was unavailable. Nevertheless, the limited rise of unemployment compared with past recessions was a relative bright spot during the crisis.
Real pay is still falling
Just as unemployment has been falling, employment has been rising, with 30.76 million people in work according to the latest figures. But despite the better jobs outlook, wage growth has been unexpectedly weak. Inflation is low, at 1.2% on the consumer prices index, but pay growth of 0.7% between June and August, compared with a year earlier, is lower. The fact is, wage growth has lagged inflation for the majority of the time since 2008, meaning workers have suffered six years (and counting) of falling real pay. In the chart above, regular pay refers to pay excluding bonuses, while total pay includes bonuses.
House prices have risen sharply but are starting to cool
A steady rise in house prices in the early part of last year began to gather pace triggering fears of a fresh housing bubble in the UK. London prices rose rapidly, but growth started to trickle out to the regions. According to Hometrack, house prices in September were 9% higher than a year earlier but there are signs that the housing market is beginning to cool.
The deficit remains stubbornly high
When the coalition came to power in 2010 George Osborne vowed to restore Britain’s economic credibility and protect its prized AAA credit rating. The chancellor announced sweeping spending cuts to get the public finances in order but more than four years on, the deficit remains stubbornly high despite economic recovery. Government borrowing in the first six months of the 2014-15 fiscal year has been higher than expected – partly as weak wage growth has limited income tax receipts – and economists believe Osborne is on course to miss his deficit-reduction target this year. As for the AAA rating? Two of the three main agencies stripped the UK of its top-tier status last year.
