In the second quarter of 2014, the UK economy recovered completely from the economic shrinkage caused by the financial crisis and the Great Recession that followed. Q2 2014 quarter-on-quarter growth was 0.8%, the second consecutive quarter of 0.8% GDP expansion.
The British economy is now 0.2% bigger than it was in the Q1 2008 peak, says the Office for National Statistics.
From its Q1 2008 peak to its trough in 2009, UK GDP contracted by 7.2%.
Just two components grew
Output grew in two of the four main industrial groupings in Q2 this year compared to Q1.
Output increased/decreased by (in order for their contribution):
- Services: +1% (accounts for nearly three-quarters of the economy),
- Production: +0.4%,
- Construction: -1%, the first quarter of non-growth since the beginning of 2013,
- Agriculture: -2%
On June 30th, 2014, the British economy was 3.1% bigger than on June 30th, 2013.
After the 2008-2009 recession, the UK economy flat-lined. In 2013 it sprang back to life and is now forecast to become the most-rapidly growing of the G7 rich nations, according to the IMF (International Monetary Fund).
UK foreign direct investment is Europe’s highest and the second highest globally. In 2013, foreigners invested £975 billion ($1,606 billion) in the United Kingdom, creating 66,390 new jobs in the country.
As the economy heats up, the Bank of England has made it clear that it will raise interest rates this year if it has to, rather than in 2015.
GDP per capita still below pre-crisis levels
An Editorial in the Guardian today points out that the UK’s population “has grown considerably since 2008.” Therefore, the larger economic pie has to be divided up between many more mouths, “leaving a smaller sliver for each.”
Sarah O’Connor wrote in the Financial Times that output per person is still 4% pre-crisis levels, real wages continue falling and “productivity remains puzzlingly weak.”
Only Italy among the G7 nations has taken longer than the UK to recover completely from the financial crisis.
Most voters will be more concerned about their purchasing power, which has suffered because wages have not kept up with inflation.
With general elections in 2015, many British newspapers today wonder whether the economic rebound has come too late for the Conservative Party.
According to polls, Prime Minister David Cameron’s Conservatives, who rule in a coalition with the Liberal Democrats, are behind the Labour Party.
The economic expansion masks a persistent weakness in the British economy. Economists and lawmakers had hoped there would be a shift towards international trade – importing and exporting goods and services – and less dependence on domestic consumption; this has not occurred yet. There are also fears of a property bubble as house prices rise steeply.
Most economists believe UK GDP growth during the second half of the year will be more moderate. If it is, and wage inflation continues at its sluggish rate, raising interest rates will likely be postponed until next year. August’s inflation report will give a better indication.
The Office for National Statistics says that later this year it will change the way it calculates GDP, which may well show that the economic crisis was not quite as bad as everybody had thought.
Unemployment in June fell to a six-year low of 6.4%, the Office for National Statistics reported on August 13.
Video – UK Economy Q2 2014
This short video from the Office for National Statistics explains the preliminary estimate of GDP for the second quarter of 2014.