Growth Figures OK, But Rate Rise Talk Overdone


The going’s been tough, but now, at last, the tough get growing…

Today’s Gross Domestic Product (GDP) figures for the second quarter of 2015 have brought some happier news. There was some concern when the economy only delivered 0.4 per cent growth in the first quarter and this was partly attributed to the impending election. The economy grew by 0.7 per cent in the second quarter and at an annual rate of 2.6 per cent. Interestingly, GDP is now 5.2 per cent higher than the pre-economic crisis peak of the first quarter of 2008. It took us a long time to get there, which has been reflected in poor wage growth and dismal productivity figures post-crisis.

At the start of the last Parliament, the Chancellor stated that his ambition was to achieve more balance in the UK economy, which he regards as having an unhealthy dependence on the services sector. This remains the case with services representing 78 per cent of the economy.

The latest figures show that services grew by 0.7 per cent in the second quarter and production by 1 per cent whilst construction was flat and agriculture declined by 0.7 per cent. Production was led by a strong performance from the mining and resources sector, whilst manufacturing fell by 0.3 per cent having only increased by 0.1 per cent in the first quarter. The manufacturing sector is being held back by a prolonged period of underinvestment and by the strength of sterling against the euro. There is a need for manufacturing businesses, which include many SMEs to invest in order to increase productivity and to be better able to compete internationally. This is where Money&Co. can help.

Lacklustre manufacturing, construction and retail sales figures make a rate rise less likely

As ever, there is a mixed performance underlying the headline figures and there is much that needs to be done to improve the UK’s economic performance. It is good news that the economy is now above the pre-crisis peak seen in early 2008, but it took us much longer to get to that point than Germany and France. There is talk of interest rates edging up later this year to combat inflationary pressures that could result from increased economic activity, but the lacklustre performance of the manufacturing and construction sectors and the weaker than expected retail sales figures last week make this less likely than some believe.

We continue to see a high level of demand for borrowing from small and medium-sized companies in the UK, who have found it difficult to borrow from banks. The availability of credit through platforms like Money&Co. should assist in allowing the UK to maintain strong economic growth over the coming months.


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