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Uk's 'startling' Economic Growth Reignites Austerity Debate

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http://www.telegraph.co.uk/finance/economics/7906732/UKs-startling-economic-growth-reignites-austerity-debate.html

Gross domestic product (GDP) in the quarter to June leapt 1.1pc, the most since the first three months of 2006, lifting sterling 1.2pc against the dollar. Economists had forecast just 0.6pc growth.

The surge was driven by a startling recovery in construction and the resilience of Britain’s powerhouse services sector. It puts UK growth for the first half at 1.4pc – already ahead of the Treasury’s own forecasts of 1.2pc for the full 12 months.

Capital Economics, which was predicting a 1pc annual increase, revised its position, describing the numbers as “a pleasant surprise” and saying: “The figures suggest that growth in 2010 overall may now be closer to 1.5pc.”

Although universally welcomed, the speed of growth reignited debate about the Chancellor’s savage austerity measures to get the public finances under control. In the short term, the planned £40bn of tax rises and spending cuts are expected to soak up demand and kill off growth.

Shadow Chancellor Alistair Darling warned that the cuts could jeopardise the recovery and said the coalition “will have to accept responsibility for the risks they are taking with the economy”. “This is the final nail in the coffin of the Coalition’s argument that things are worse than they believed before the election,” Mr Darling added.

However, Treasury sources claimed that “not tackling the deficit risks future growth more than not moving on it”. In a statement, George Osborne stressed that the Government would not be deterred, arguing that the strength of the private sector in the past three months indicated that the time is ripe to start slashing Britain’s debt pile.

He said: “Today’s figures show the private sector contributing all but 0.1pc of the growth in the second quarter, and put beyond doubt that it is right to begin acting on the deficit now. While I am cautiously optimistic about the path for the economy, the job is not yet done. The priority now is to implement the Budget policies which support rebalancing and help ensure the sustained growth forecast this year and next.”

Economists remain divided about the path to recovery. Some support the Government’s plans to put the UK on a stronger long-term footing by grappling with the £927bn national debt. Others back Labour’s approach, arguing Britain needs to grow its way back to stability before attacking the deficit.

Separate figures on the housing market provided a timely reminder that the recovery remains muted. The British Bankers’ Association reported that mortgage approvals for house purchases fell to a four-month low of 34,813 in June from 36,418 in May, the second lowest level of since May 2009, and well below the 59,387 13-year average.

Net mortgage lending also moderated to £2.1bn in June from £2.5bn in May, below the six-month average of £2.5bn. Howard Archer, chief UK economist at IHS Global Insight, said the data “reinforce our suspicion that house prices will fall back by 3pc-5pc over the second half of 2010”.

Drawing on concerns about the recovery, David Kern, chief economist at the British Chambers of Commerce, said: “We must not forget that these positive results do not yet take into account the impact of the tough measures announced in the emergency Budget.”

Darling at his finest, we've borrowed billions and we've achieved growth because govt spending counts towards GDP. If the govt keeps borrowing GDP can keep growing and the recovery is locked in.

Although this fails to take into account debt servicing costs, but I suppose we borrow the money to pay for that as well?

So the govt has borrowed £150bn, the BoE have printed £200bn+ of funny money and the reward is 1.1% growth in Q2. Excellent.

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I cannot believe Darling's argument here, it's almost like he's no fvcking idea what he's talking about :unsure:

Wish I could tap into some of this free funny money as I too would be out adding to GDP, new car, holidays, big TV, pair of chaps and a ten gallon hat...

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I cannot believe Darling's argument here, it's almost like he's no fvcking idea what he's talking about :unsure:

Wish I could tap into some of this free funny money as I too would be out adding to GDP, new car, holidays, big TV, pair of chaps and a ten gallon hat...

The 'funny money done it'. It is on the wane and these construction figures are nothing to do with reality on the ground. It is again a dead cat bouncing with borrowed and printed unaffordable cash masquerading as real growth. Some larger companies have recovered their composure but for most of the economy, the sentiment is the opposite awaiting massive cuts. Still, Darling knew best......(Does Osborne? That's the question)

Edited by plummet expert

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The austerity debate is a separate issue in some ways, as was discussion about how this happened (QE, almost ZIRP) and whether it is a convincing as something sustainable. But Darling's statement is correct, he was right, a hell of a lot of other people were wrong (and some of them are on this forum). I wonder how many will have the intellectual honesty to admit it? Politically, the Coalition do have a problem now. If George Osborne, obviously the pre-eminent intellectual heavyweight of his generation, has misjudged the situation, he will have enough of the blame for the ensuing double-dip and possible depression on his hands and invoking the spectre of Gordon is -- rightly or wrongly --weakening as an argument by the day. The economy Labour left us with is strengthening...how will it fare when its properly on Osborne's watch? Unfair perhaps but there it is.

Edited by Cogs

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If the economy is growing so strongly of its own volition, surely we don't need to "pump the prime" any longer.

Short term interest rates should go back up to inflation plus 2% and we should remove the structural deficit immediately.

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The austerity debate is a separate issue in some ways, as was discussion about how this happened (QE, almost ZIRP) and whether it is a convincing as something sustainable. But Darling's statement is correct, he was right, a hell of a lot of other people were wrong (and some of them are on this forum). I wonder how many will have the intellectual honesty to admit it? Politically, the Coalition do have a problem now. If George Osborne, obviously the pre-eminent intellectual heavyweight of his generation, has misjudged the situation, he will have enough of the blame for the ensuing double-dip and possible depression on his hands and invoking the spectre of Gordon is -- rightly or wrongly --weakening as an argument by the day. The economy Labour left us with is strengthening...how will it fare when its properly on Osborne's watch? Unfair perhaps but there it is.

Strengthening?? What exactly is getting better?

Inflation and unemployment are going up indicating there IS NO recovery underway - note where the growth came from, the services sector.

This is nothing more than borrowed money being pissed against the wall during a world cup season!

Edited by Krackersdave

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The British Economy always does well after a fall in the value of Sterling. The plunge from 2008 was mighty indeed, and that plunge made our exporters cheaper, encouraging our exporters to produce more. We had a similar golden period after we were expelled from EMU in the early 1990's.

Trying to recall now how far the pound went down. Was it around $2.10 to the pound, and fell to $1.40, with similar falls against other currencies?

That sort of fall gives the country one heck of a stimulus, add in the £200bn of QE, and it would be troubling if nominal GDP didnt show an uptick.

There is a surprise though. Our export markets are weaker than hoped, and the amount of growth, 1.1% is hardly anything to write home about. Factor in the 0.5% bank rate, and the fact that the pound is now well above £1.50, and rising, then I think we can see the end of this nominal growth within a few quarters.

I just hope that the government dont factor in this 'growth' as something that is locked in and which can be banked on. It isnt, and if you throw everything in, you will lose everything.

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The austerity debate is a separate issue in some ways, as was discussion about how this happened (QE, almost ZIRP) and whether it is a convincing as something sustainable. But Darling's statement is correct, he was right, a hell of a lot of other people were wrong (and some of them are on this forum). I wonder how many will have the intellectual honesty to admit it? Politically, the Coalition do have a problem now. If George Osborne, obviously the pre-eminent intellectual heavyweight of his generation, has misjudged the situation, he will have enough of the blame for the ensuing double-dip and possible depression on his hands and invoking the spectre of Gordon is -- rightly or wrongly --weakening as an argument by the day. The economy Labour left us with is strengthening...how will it fare when its properly on Osborne's watch? Unfair perhaps but there it is.

An interesting take on the situation.

I am not sure that anything is measurable yet. The short term benefits of QE / ZIRP / stimulus etc are known. The long term costs are not yet known.

We have copied the Japanese policy prescriptions with a more aggressive timetable. They have been saying that their problem will be over "next year" and that their economy will be self sustaining "next year" for something close to 20 years already.

They are just about at the point where their internally funded deficit spending has eaten up all of their domestic savings. It remains to be seen whether they "blow up" once their domestic savings are fully consumed by national debt.

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Guest Noodle

Strengthening?? What exactly is getting better?

Inflation and unemployment are going up indicating there IS NO recovery underway - note where the growth came from, the services sector.

This is nothing more than borrowed money being pissed against the wall during a world cup season!

You might be krackers, Dave, but I make you right.

My old business was a good indicator of future building, brownfield land . . . dead as a door nail.

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Strengthening?? What exactly is getting better?

Inflation and unemployment are going up indicating there IS NO recovery underway - note where the growth came from, the services sector.

This is nothing more than borrowed money being pissed against the wall during a world cup season!

GDP has risen in services. We have a largely service based economy, it is wrong to assume that it equals people cutting each other's hair. Also construction is up, as are new car sales even after scrappage was stopped. I don't think its all flowers and rainbows either but the Coalition have been wrong footed by (vaguely) good news.

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GDP has risen in services. We have a largely service based economy, it is wrong to assume that it equals people cutting each other's hair. Also construction is up, as are new car sales even after scrappage was stopped. I don't think its all flowers and rainbows either but the Coalition have been wrong footed by (vaguely) good news.

I do not think the coalition have been wrong footed by the good news. When the coalition took power they never said the economy was worse than they expected, what they said was that the govt finances were in a worse state than they expected because of Mandys unlimited cheque book, unfunded programs BSFand becaue LAbour had not made any effort to cut waste but just kept on spending. This was the justification used to cut quickly and deeply and rise VAT, not that the economy was worse than expected.

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I do not think the coalition have been wrong footed by the good news. When the coalition took power they never said the economy was worse than they expected, what they said was that the govt finances were in a worse state than they expected because of Mandys unlimited cheque book, unfunded programs BSFand becaue LAbour had not made any effort to cut waste but just kept on spending. This was the justification used to cut quickly and deeply and rise VAT, not that the economy was worse than expected.

No, that isn't the case. I'm not sure where you've got that idea from(?) George Osborne accused Darling of fiddling the figures and claimed to have discovered that they were 'worse than we thought' (thats a quote btw). It has nothing to do with Mandelson and forms the justification for Osborne and Dave lavishing your money on a new QUANGO to replicate functions already carried out by the Treasury, largely on the basis that in opposition it suited them to say the Treasury lies and in Government it suits them to claim it tells the truth. Disgusting use of public funds but there you are. http://www.independent.co.uk/news/uk/politics/are-the-books-really-in-as-bad-a-mess-as-the-coalition-says-2000518.html<br />http://www.yorkshirepost.co.uk/news/Finances-39worse-than-we-thought39.6362525.jp<br /><br />

Shadow chancellor Alistair Darling claimed his successor was "scaremongering" and damaging business confidence but Mr Osborne insisted the growth forecast from the new financial watchdog was "lower than the country was told at the time of the election".
I wonder why the millionaire George Osborne sought to undermine business confidence in the UK? I hope he explains himself. Edited by Cogs

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1. Brown is useless and spends like a loon.

2. Osborne takes over - is even more useless and cuts like a bigoted loon.

3. Economy goes down toilet.

I can't see where the debate is?

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We've pumped £200 billion into the economy using printed cash, and we're surprised when it grows by 1.1%? I'm surprised it hasn't grown by 10%, as this is roughly the percentage of GDP that has been injected.

Cogs is right at one level - it does present the coalition with political problem. QE and printing money is a fairly intellectual discussion which will pass 75% of the population by. The headline is "1.1% growth" - which will in all likelihood, sink back again as the QE expires. It will be all to easy to blame the coalition for this, when it reality it is only the old problem coming back after the sticking plaster has come off.

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Guest Noodle

1. Brown is useless and spends like a loon.

2. Osborne takes over - is even more useless and cuts like a bigoted loon.

3. Economy goes down toilet.

I can't see where the debate is?

The debate is really the dire effects of ideologies swinging like a pendulum and these damn awful self-interested political parties (all of them) putting their 'organisations' before the good of the country.

Coalition aside, I think the benefit of having political parties which kept each other in check has long gone.

It's like they beat each other with the same stick, the stick being the UK populous.

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The debate is really the dire effects of ideologies swinging like a pendulum and these damn awful self-interested political parties (all of them) putting their 'organisations' before the good of the country.

Coalition aside, I think the benefit of having political parties which kept each other in check has long gone.

It's like they beat each other with the same stick, the stick being the UK populous.

Ideology don't be absurd, time to reduce taxes ;)

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BBC news says construction / property is now booming. More like it's a supertanker with no rudder - up one week, down the next - nobody knows where it's headed.

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Surely if the economy is growing it's absolutely right to tackle the deficit right now ? Wasn't labour's argument that the economy was weak (the economy they left behind) and spending cuts would be wrong ? Well looks like the economy grew more than expected, so we can safely cut. So the Tories are right to do it.

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The austerity debate is a separate issue in some ways, as was discussion about how this happened (QE, almost ZIRP) and whether it is a convincing as something sustainable. But Darling's statement is correct, he was right, a hell of a lot of other people were wrong (and some of them are on this forum). I wonder how many will have the intellectual honesty to admit it? Politically, the Coalition do have a problem now. If George Osborne, obviously the pre-eminent intellectual heavyweight of his generation, has misjudged the situation, he will have enough of the blame for the ensuing double-dip and possible depression on his hands and invoking the spectre of Gordon is -- rightly or wrongly --weakening as an argument by the day. The economy Labour left us with is strengthening...how will it fare when its properly on Osborne's watch? Unfair perhaps but there it is.

Lets all step back and look at things in a couple of months when these figures are "revised" as they always are. My guess is that somebody put a decimal point in the wrong place-honest mistake guv.

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No, that isn't the case. I'm not sure where you've got that idea from(?) George Osborne accused Darling of fiddling the figures and claimed to have discovered that they were 'worse than we thought' (thats a quote btw). It has nothing to do with Mandelson and forms the justification for Osborne and Dave lavishing your money on a new QUANGO to replicate functions already carried out by the Treasury, largely on the basis that in opposition it suited them to say the Treasury lies and in Government it suits them to claim it tells the truth. Disgusting use of public funds but there you are. http://www.independent.co.uk/news/uk/politics/are-the-books-really-in-as-bad-a-mess-as-the-coalition-says-2000518.html<br />http://www.yorkshirepost.co.uk/news/Finances-39worse-than-we-thought39.6362525.jp<br /><br />

I wonder why the millionaire George Osborne sought to undermine business confidence in the UK? I hope he explains himself.

I live in the US. We have no "lifetime dole", 40m are on foodstamps, property has TRULY crashed and we all expect another 20% leg down. The UK has lifetime benefits, nobody on foodstamps and a property market still overvalued. The UK has no industry to speak of, and relies on a "service" industry (whatever that is) and selling shoe boxes to one another. Good luck with that. Just step back from published "GDP growth" bullcrap and use plain commonsense. Then tell me that the current bunch are wrong to try and reduce the deficit.

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Guest Noodle

I live in the US. We have no "lifetime dole", 40m are on foodstamps, property has TRULY crashed and we all expect another 20% leg down. The UK has lifetime benefits, nobody on foodstamps and a property market still overvalued. The UK has no industry to speak of, and relies on a "service" industry (whatever that is) and selling shoe boxes to one another. Good luck with that. Just step back from published "GDP growth" bullcrap and use plain commonsense. Then tell me that the current bunch are wrong to try and reduce the deficit.

As you know Tom, us expats get the opportunity to view the UK and life there and industry and wotnot from new perspectives. Many get irritated by my silly nonsense about life in the far east but I'm just trying to provide another world view of how things work (or more than often just barely here).

It really is only when you've left the UK and look back on it and working life (and attitudes) there that you realize it really doesn't work terrifically efficiently and it's no wonder the place just continues to accumulate debt.

Lord Wienstock had it right back in the early 80's when he asked Thatcher what these service industries were going to service.

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Construction spending is so good that public sector construction projects now outvalue private sector - lunacy and total economic fakery.

Also VAT has raised output - LOL, wait for some stunning figures around new year then when VAT goes up again; the rest, inflation.

Edited by OnlyMe

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This time the economists, at least the ones I've read today, are probably right. This growth is due to a cyclical inventory restocking and may well be the high water mark for some time to come.

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  • 193 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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