Credence Independent Advisors Blog - Britain’s GDP Surpasses Pre-Recession Peak
The level of UK GDP is approximately 0.2pc above where it was in January 2008, according to The National Institute of Economic and Social Research
Britain has reached the “symbolic milestone” of clawing back all the losses it suffered during the Great Recession, a leading think-tank said on Tuesday, while strong manufacturing figures added to evidence that the recovery is broadening out.
The National Institute of Economic and Social Research (NIESR) said the UK economy grew by 0.9pc cent in the three months to May, following growth of 1.1pc in the quarter to April. By this estimate, the level of UK gross domestic product (GDP) is approximately 0.2pc above its previous high-point in January 2008.
The profile of recession and recovery Graph: NIESR
Jack Meaning, a research fellow at NIESR, said “robust” growth rates over the past twelve months had bought the UK economy back to its pre-recession peak. “The growth has been reasonably broad-based. The pick-ups were initially in consumption but now there is some rebalancing towards investment activity as well,” he said.
NIESR’s analysis came as official data showed manufacturing rose at its fastest annual pace in three years in April, indicating a broadening of the expansion.
Industrial production increased by 3pc between April 2013 and April 2014, while manufacturing increased by 4.4pc over the same period, according to the Office for National Statistics (ONS). On a monthly basis, production increased by 0.4pc between March and April.
“British factories are booming,” said Chris Williamson, chief economist at Markit. “The official and survey data also help to dispel the notion that the recovery is based purely on consumer credit and the housing market, but is instead being fuelled to a large extent by booming factories and industry.”
All of the main sectors were higher than they were a year ago except for electricity, gas, steam & air conditioning, which saw a decline in output of 11.5pc.
The ONS said that warmer weather probably reduced demand for gas and electricity.
Michael Saunders, chief UK economist at Citibank, described the robust manufacturing growth as a “march of the makers”, while Martin Beck, senior economic advisor to the EY ITEM Club, said the manufacturing sector remained “the golden child of the industrial renaissance”.
Mr Beck said: “A decent expansion in manufacturing output and a continued rebalancing of the economy look set to continue.” However, he added: “One thing lacking in the official data in recent months has been overseas demand, weighed down in part by the strength of the pound.”
Analysts also said Tuesday’s data kept the UK economy on track to expand at its fastest annual rate since 2007. NIESR expects the economy to grow by 2.9pc in 2014 and 2.4pc in 2015. A separate report by the Organisation for Economic Co-operation and Development (OECD) said UK growth remained at “above trend rates” in April, suggesting that the recovery is gaining traction.
However, Mr Meaning said that compared to other major countries, the UK was one of the last to surpass pre-recession GDP levels.
“France was marginally earlier than us and America was quite a bit earlier than us. It is the Eurozone counties such as Italy, Spain and Greece that are still below pre-recession peaks,” he said. “I think this is a symbolic milestone. It may give a small confidence effect. But we really need a pick-up in other things such real wage growth, which is still at the same level as it was 2004.”
NIESR expects real wages to regain the 2009 high towards the end of 2018. It also believes GDP per capita will not recover to pre-crisis levels until 2017. Factory output also remains 7pc below its peak, in contrast to services sector output, which is already well above pre-crisis levels.
Business Secretary Vince Cable said this week that while the UK’s economic recovery is “generally a good story”, it still needs to shift towards exports.
