Support 100 years of independent journalism.

  1. Business
  2. Economics
28 January 2014

GDP figures: Osborne has been the beneficiary of low expectations

The economy is still 1.3 per cent smaller than before the recession and the recovery remains the slowest since 1870s.

By George Eaton

Solid but far from spectacular. That is probably the fairest description of how the economy performed in the final quarter of last year. The ONS’s first estimate suggests that GDP rose by 0.7 per cent, below the 0.8 per cent measured in Q3, but enough to ensure that 2013 was the strongest year for growth since 2007, with output rising by 1.9 per cent. 

After fears of a triple-dip recession less than a year ago, the economy has enjoyed an unexpected bounceback. But it’s important to remember that this remains the slowest recovery since the 1870s, with GDP still 1.3 per cent below its pre-recession peak (the US, by contrast, is 5.6 per cent above). To this, the Tories will reply that the UK suffered a bigger crash than any other major country, with GDP falling by 7.2 per cent from peak to trough. But as Larry Summers told George Osborne at Davos last week, “The deeper the valley you are in, the more rapidly you are able to grow.”

In 2010, a genuine recovery was underway, with the economy growing 2.4 per cent in the 12 months to Q3 2010, but premature austerity, in the form of the VAT rise and the dramatic cut in infrastructure spending, ensured that growth was snuffed out. To meet the OBR’s original 2010 forecasts, the economy would need to grow by 1.6 per cent each quarter between now and the election. But Osborne has been the beneficiary of low expectations. Before the post-2010 downturn, below-trend growth of 1.9 per cent would have been viewed as a dismal failure. 

The broader concern remains, as Vince Cable suggested in his lecture last night, that this is the wrong kind of recovery, one too reliant on debt-led consumption and house price inflation, rather than exports and investment. Of the 0.7 per cent rise in output in Q3, 0.6 per cent came from the services sector, with construction actually declining by 0.3 per cent. And, of course, contrary to what the Tories claimed last week, living standards are still falling, with prices (2 per cent) rising more than twice as fast as wages (0.9 per cent). So long as this remains the case, they will still struggle to rebut Labour’s charge that this is a recovery for the few, not the many. 

Sign up for The New Statesman’s newsletters Tick the boxes of the newsletters you would like to receive. Quick and essential guide to domestic and global politics from the New Statesman's politics team. The best of the New Statesman, delivered to your inbox every weekday morning. The New Statesman’s global affairs newsletter, every Monday and Friday. A handy, three-minute glance at the week ahead in companies, markets, regulation and investment, landing in your inbox every Monday morning. Our weekly culture newsletter – from books and art to pop culture and memes – sent every Friday. A weekly round-up of some of the best articles featured in the most recent issue of the New Statesman, sent each Saturday. A weekly dig into the New Statesman’s archive of over 100 years of stellar and influential journalism, sent each Wednesday. Sign up to receive information regarding NS events, subscription offers & product updates.
I consent to New Statesman Media Group collecting my details provided via this form in accordance with the Privacy Policy