The ONS has published significant revisions to its historic data, showing that the UK economy was not as weak as previously thought. However, there is a downside: living standards fell by the largest amount in a generation at the beginning of this year. Real disposable income was down 1.7% in the first quarter of 2013, a drop not seen since 1987, as wages fell in real terms and prices rose.
Hold the celebrations
Before everyone uncorks the champagne, the news means that the actual recession post-2008 was in fact deeper than previously thought. The current government will be delighted that there was no recession under its leadership, and that the recession under Labour was worse than had been stated, but it can take little comfort from the gloomy vista presented by consumer spending.
This provides an interesting commentary on the state of the UK economy: the overall picture might not be apocalyptic, but with consumer spending so heavily depressed we are unlikely to see a major recovery in the near term, or even over the next few years. Wage growth is almost non-existent, but inflation remains above the Bank of England’s target rate.
There’s still work to be done
The spending review shows that the government is making steady, if modest, progress on deficit reduction, but so far we have failed to get to the heart of the UK’s problems. A new Bank of England governor might inspire some hope, but Mr Carney can only have a minimal impact on consumer spending.
Those hoping for a strong bounce in the UK economy will be sorely disappointed. Today’s GDP data might give a small positive boost, but the long-term view is much dimmer. We are a long way from being out of the woods.