The second estimate of GDP was released today along with the first estimate of business investment growth for the second quarter of 2013. As with most recent data, this release again brings more positive news about the state of the UK economy and raises questions - has the UK has turned a corner and should we start celebrating?
Let's put the champagne on ice and see what today's release really says.
GDP is looking good!
- GDP had a slight upwards revisions to growth of 0.7% in 2013q2.
- Virtually all expenditure components of GDP grew in the second quarter of this year.
- Net trade had a positive contribution to growth of 0.3 percentage points and has now contributed to growth in three out of the past four quarters. Is this the start of the much awaited rebalancing?
Business investment – not as bad as we thought
- Today's figures show business investment grew 0.9% in the second quarter of 2013 raising the question of whether this is the start of the recovery in business investment that economists have been forecasting since the end of the recession.
- While this quarter growth was positive, we can't lose sight of the fact that investment remains well below – 25% to be precise – the pre-recession peak.
- Though even this is in some ways good news. Last month, Lee Hopley, EEF's Chief Economist, pointed out in this blog that the Blue Book revisions showed investment was a third below the pre-recession peak and suffered a significant fall in the last quarter of 2012. This month some of the fall in 2012q4 has been revised away meaning business investment is only a quarter, and not a third, below the pre-recession peak.
Does this positive news mean it is time to crack open the champagne?
We need to be somewhat cautious in our interpretation of these results. They certainly add to the positive set of data we have been seeing over the past couple of months but we need to be sure of a lasting recovery before we celebrate too hard. The investment recovery has been just around the corner since the end of the recession and growth prospects will be hurt if our current forecast does not eventuate. We need to see growth in business investment strengthen and be sustained. So let's leave the fizz for now and reach for a Whisky instead, that will at least support UK manufacturing.