Play Brightcove video
The UK economy grew by 0.4% between April and June this year, helped by growth of 0.3% in June, as ITV News Business and Economics Editor Joel Hills reports
At the beginning of the year, the economy came out of the traps like a greyhound. Between April and June, the pace remained robust.
Granted, economic growth slowed to 0.4% in the second quarter, down from 0.6% in the first, but given the arthritic performance of recent years, that’s still a fair old pace.
“For a second straight quarter, it looks like the UK will take its place either at or near the top of the G7 league table,” says Sanjay Raja, Deutsche Bank’s Chief UK Economist – just behind Canada, a nose ahead of the US and Italy.
The performance is all the more impressive given our exposure to what has been happening in the Middle East.
The war in Iran has caused the international market price of oil to lurch upwards, dragging the price of many other things up too – fanning inflation and keeping interest rates higher than they otherwise would be.
The price of petrol rose by 11p a litre in the last month to a new peak since the war began. Credit: iStock
Motorists have felt it at the pumps and homeowners have felt it when they have come to remortgage.
But amid the political turmoil and the heatwaves, and perhaps gripped by World Cup fever, households ramped up their spending in June.
Government support for the economy faded as public investment fell but business investment surged.
There are plenty of reasons for the new prime minister to feel hopeful.
The evidence suggests Andy Burnham has come to power at a time when consumer confidence is improving, people are feeling more secure in their jobs and more willing to spend on non-essentials. Retail sales, car sales and bank lending all look strong.
Gross Domestic Product per person in the UK – the economic measure which matters most for living standards – also rose by 0.4% between April and June. Nothing to crow about, perhaps, but one of the better performances since the pandemic.
The new chancellor is channellinfg the good vibes.
Burnham’s budget plans are still uncertain but there are rumours of tax rises on the way. Credit: PA
“This is an active, hands-on government, putting British interests first – giving breathing space to those feeling the strain, making our country more resilient and bringing hope back,” said Chancellor John Healy in a statement on Thursday.
If a peace deal can be agreed between the US and Iran, if the Strait of Hormuz can be sustainably reopened, and if the price of energy drops and inflation fades – maybe the Bank of England will begin to cut interest rates. Why, things could get even better.
Of course, none of the above may happen. Things could get worse.
Wage growth in the UK is already slowing. The price of petrol has risen 11p a litre in the last month to a new peak since the war began.
Most economists expect inflation to edge up further in the months ahead, along with unemployment, which is one reason why Burnham is making so much of leading a “cost-of-living government”.
UK versus the G7 GDP growth since Labour came to power. Credit: Deutche Bank
He is already hard-selling relatively cheap giveaways – bus fare freezes and VAT cuts to energy bills, a modest tax cut for pubs – as very big deals and we can expect more support to come in the Budget in October.
In recent years, endless pre-Budget speculation about tax rises and who will be targeted has been deeply unhelpful – making businesses cautious about investing and taking people on.
We still don’t have a clear idea of what Andy Burnham’s tax and spending plans are. The campfire gossip is that there are some hefty tax rises coming.
It’s certainly hard to reconcile his stated ambitions – more public control of public services, a council housebuilding revival, reform of social care – with the state of the government’s finances.
It will be interesting to see how Number 10 decides to manage the weeks ahead.
UK versus G7 GDP per head Credit: Deutche Bank
It’s worth remembering that we are now two years into a Labour government that swept to victory on a pledge to revive economic growth and deliver prosperity that households would feel in time for the next election.
“The highest sustained economic growth in the G7” is what Labour promised. Middle-of-the-pack is what we have got so far, however you measure it.
In truth, in the very short run, governments can do relatively little to influence the economy. Over the longer term, policy decisions can be enormously consequential.
Many economists argue that the relative “boom” of the Tony Blair years was made possible, at least in part, by reforms Margaret Thatcher enacted more than a decade earlier.
Burnham sounds like a man who wants to reverse the 1980s. But maybe there will be a difference between what he says and what he does.
And maybe he will get lucky in the Middle-East.
Want a quick and expert briefing on the biggest news stories? Listen to our latest podcasts to find out What You Need To Know