The chan­cel­lor claims strong growth, but it’s mostly froth

The Guardian - - FINANCIAL - Larry El­liott

No chan­cel­lor can re­sist the idea of a good photo op­por­tu­nity, and Philip Ham­mond chose a brew­ery to mark the re­lease of Bri­tain’s lat­est growth fig­ures. As he pulled a pint for the cam­eras, his mes­sage was that the strong­est ex­pan­sion in al­most two years was proof of the un­der­ly­ing health of the econ­omy. It was no such thing. This was a glass mainly full of froth.

On the face of it, the econ­omy has been pick­ing up speed through­out 2018. Growth was 0.1% in the first quar­ter, 0.4% in the sec­ond quar­ter, and has now hit 0.6% in the third quar­ter. But what ac­tu­ally hap­pened was that bad weather in the first few months of the year ar­ti­fi­cially de­pressed ac­tiv­ity and this weak­ness has been fol­lowed by a pe­riod of catch-up, es­pe­cially in the con­struc­tion sec­tor.

On top of that, a com­bi­na­tion of a heat­wave and Eng­land’s un­ex­pected progress in the World Cup boosted re­tail spend­ing in July, the first month of the third quar­ter. In both Au­gust and Septem­ber, the econ­omy flat­lined, and for­ward­look­ing sur­veys sug­gest a slow­down to 0.2-0.3% in the fi­nal three months of the year. Spend­ing in the high street and on­line fell back af­ter the sum­mer surge, which ei­ther means con­sumers are sav­ing their money for Christ­mas or re­tail­ers are in for a mis­er­able fes­tive sea­son. Ei­ther way, the third quar­ter was as good as it gets for now.

Nor does the break­down of the flash GDP es­ti­mate sup­port Ham­mond’s ar­gu­ment that the econ­omy is in tip-top shape. Busi­ness in­vest­ment fell by 1.2%, the third quar­terly de­cline in a row. That has not hap­pened since the fi­nan­cial cri­sis of a decade ago, with the in­escapable con­clu­sion that Brexit is lead­ing to firms de­fer­ring spend­ing while the talks drag on.

While UK growth ac­cel­er­ated, growth in the eu­ro­zone halved from 0.4% to 0.2%.The un­der­ly­ing pic­ture, how­ever, is sim­i­lar. Growth in the UK has been mod­est for a decade de­spite a colos­sal amount of stim­u­lus. The same ap­plies to the eu­ro­zone, where the im­pact of boost­ing mea­sures is fad­ing. It wouldn’t take much to turn fragility into some­thing a whole lot worse.

Newspapers in English

Newspapers from UK

© PressReader. All rights reserved.