Osborne and Balls react to faster GDP growth – and both seem to miss the point
Both chancellor George Osborne and shadow chancellor Ed Balls have weighed in on the second quarter GDP figures. If you have want some analyst reaction, we have that too.
Chancellor George Osborne:
Britain is holding its nerve, we are sticking to our plan, and the British economy is on the mend – but there is still a long way to go and I know things are still tough for families.
So I will not let up in my determination to make sure we put right all that went wrong in our economy.
Unlike the unbalanced economy before the crisis, we are going to make sure that everyone benefits from this recovery.
GDP stats better than forecast.Britain's holding its nerve, we're sticking to our plan, the economy's on the mend.But still a long way to go
— George Osborne (@George_Osborne) July 25, 2013
Firstly, the GDP statistics weren't better than forecast – at 0.6 per cent – they were bang on the consensus forecast. If anything, they were a bit of a disappointment. That's why the pound lost strength against the dollar on their announcement.
Secondly, there's little indication that the economy is making much headway when it comes to rebalancing. The lion's share of the growth came from services, contributing 0.48 percentage points to the total increase. Services contributed to 78 per cent of the total.
Shadow chancellor Ed Balls:
After three wasted and damaging years of flatlining, this economic growth is both welcome and long overdue. But families on middle and low incomes are still not seeing any recovery in their living standards. While millionaires have been given a huge tax cut, for everyone else life is getting harder with prices still rising much faster than wages.
This is also the slowest recovery for over 100 years. In America, where President Obama has acted to support rather than strangle the recovery, their economy has grown nearly three times faster than the UK since autumn 2010. Simply to catch up all the ground we have lost under David Cameron and George Osborne we would need growth of 1.3 per cent each quarter over the next two years.
Real risks remain. So instead of more complacency from the Chancellor, we need action to catch up all the lost ground and secure a strong and sustained recovery that everybody can benefit from.
Balls focuses far too much on the aggregate figure here. GDP isn't even a number that can tell us that much. What's important is how many good and services are being created that people value. Our editor Allister Heath:
Ever since the Keynesian revolution, the City and government have been far too obsessed with aggregate, macroeconomic figures, as well as by consumer spending and retail sales, the final purpose of economic output, and have paid too little attention to the economy’s capital structure. We care too much about the total value of goods and services produced by the economy, and insufficiently about why these goods and services are being produced. Are they being financed by excessive infusions of credit, by government hand-outs, or printed money – bad growth – or are they being sold to solvent consumers or firms in the UK or exported abroad in competitive markets – good growth? If today’s GDP expansion turns out to have been caused by the first set of reasons, we are in trouble; if it is the latter, then we will genuinely be adding to our national wealth.