Friday, 23 November 2007

UK economy - still going strong

Although the housing market may be slowing down, data released today by the ONS suggests that the UK economy grew at a remarkably brisk pace during the third quarter. Here are the key numbers:

  • Compared to the same quarter in 2006, the UK economy grew by 3.3 percent.
  • Quarterly growth was 0.8 percent.
  • During 6 out of the last 7 quarters, the economy grew by at least 0.8 percent

  • Today's data suggests that the economy is still growing very quickly, despite the recent hikes in interest rates. These hikes may have hit the housing market, but the real sector remains largely unscathed.

    However, UK inflation remains uncomfortably high at 4.2 percent. Oil prices are approaching $100, while world commodity prices are increasing rapidly.

    What does this mean for future interest rate policy? First, in terms of growth and inflation, there is no justification for any cuts in the near term; growth is strong and inflation is too high. Second, any near-term cut in rates would, in effect, be an effort to bail out the housing sector.

    Of course, bailing out BTL speculators is not part of the mandate of the Bank of England, yet somehow, one suspects that a cut is coming. The BoE may have gained its independence from the government but it is now captured by vested interests in the mortgage and housing industry.


    Anonymous said...

    I am confused. I thought that the economy slowing. However, there is no evidence of a slowdown in your chart.

    Anonymous said...

    This post is a bit too backward looking for my taste. The Bank of England has to set interest rates with an eye on future growth developments. The declining housing market does point to a future slowdown in growth. The housing crash is a leading indicator of future problems.

    JEFF said...

    I agree.

    No one is suggesting that rates should be cut because of current GDP data.