The Conservative-Liberal Democrat coalition government led by David Cameron took the new GDP figure as a vote of confidence in its economic management program.Dominic Lipinski
Fresh growth figures handed David Cameron, the British prime minister allegedly set to plunge his country back into recession, a rare bit of good news today. Growth in the third quarter, at 0.8 per cent, was double what most economists had expected.
While the figure (subject to revision) is less than the 1.2 per cent growth rate recorded in the second quarter, is was enough to convince Britons that a double-dip recession is not a certainty as the housing market goes in the wrong direction and the domestic financial services industry remains under pressure.
The Conservative-Liberal Democrat coalition government, which took office in May after sending Gordon Brown's Tories packing, took the new GDP figure as a vote of confidence in its economic management program, one dominated by a brutal austerity program that is seeing department budgets cut by 15 per cent to 25 per cent as it tries to rein in one of the European Unions ugliest budget deficits.
The government also received a boost from Standard & Poor's. The ratings agency today lifted its outlook for Britain to "stable" from "negative."
George Osborne, the chancellor of the exchequer, said "the country's credit rating, which had been put at risk by the previous government, has been secured," he said, adding that a "steady recovery" is now underway.
Not so fast, say some economists. "The government will no doubt take this as a sign that the private sector can fill the gap created by public sector cuts, but with consumer confidence, hiring intentions surveys and housing activity all softening, we remain cautious," said ING Bank economist James Knightley.
He and other economists expect growth rates to decline in the next few months. Shadow chancellor Alan Johnson said the economy was still benefitting from the stimulus package put in place by the Gordon Brown government and that austerity program still posed a grave risk to the recovery. "The risk going forward is that the government has a plan to cut one million jobs, but no plan to support the private sector in replacing them," he said.
The higher than expected GDP figure pushed up the pound and gilt yields, suggesting investors think the government will wait longer before deciding to unleash another round of quantitative easing. Yields on 10-year gilts climbed about 9 basis points to a month high of 3 per cent. The FTSE-100 index fell by just under 1 per cent.
Mr. Osborne last weeks said the Bank of England is prepared to expanding is quantitative easing program if the economy were to deteriorate quickly.
Eric Reguly