UK economic growth: Super-George to the rescue

Blimey. Super-George to the rescue. A Conservative Chancellor comes to power and the economy starts to soar away.

Add in the fact that Standard & Poor’s has taken the UK out of the AAA credit rating relegation zone and you pretty much have the best day of news for George Osborne since he took up office as Chancellor.

The economy is now growing faster out of recession than it did after the 1980s recession, but it is all a bit of a shock because in most of the business surveys we are seeing far more pessimism than this.
Britain is heading for around 2 per cent growth this year. As HSBC’s UK economist said: “UK GDP growth looks to be one of the star performers of the OECD community but, if a strong rebound is developing, it remains stealthy in nature and one not detected by the major surveys of business or consumer confidence”.

Of course it would be foolish for the Chancellor to claim too much credit for the stellar 0.8 per cent rate of growth of GDP between June and September. That number probably has more to do with the legacy of the previous government’s policies and the Bank of England’s low interest rates and magic money creation scheme.

Today’s number does make it difficult to see a firm vote by the Bank of England in favour of QE2 (quantitative easing) next week, but doesn’t dash the chance of it altogether in December or next year.

However, Mr Osborne will surely be delighted by the verdict of the ratings agency, which came as a direct result of the spending review. Our AAA rating is now safe.

If today’s news was great for the Coalition, it does however double up the gamble if things do go wrong in the economy. We can now unequivocally say that Mr Osborne inherited an economy growing at a healthy rate, though with a large deficit, and that probably strengthens his hand over that immediate plan to cut quickly.

If austerity does coincide with prolonged low growth, and a sharp fall in credit creation from banks, and even the dreaded double dip, then Coalition economic policy will be somewhat exposed in the years to come.

The question of whether the upside of saving our AAA rating (note to Cabinet ministers, this is not the same as us having been on the brink of a sovereign debt crisis) to such a degree is worth the downside risk to growth is a fiendish judgement call.

Today the Chancellor will be more confident he got that right.