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UK " out of recession " if ONS is to be believed.

25 October 2012

No wonder that David Cameron could not contain his excitement after seeing the GDP data and let slip that "good news was on the way".  After an "Annus Shambolicus" for the Government this is a great news.

Britain left recession in the third quarter after posting its strongest quarterly GDP growth in five years!  Official data released today showed that the economy grew by 1%.   That is 30% more than the most optimistic economists were predicting.   The Office for National Statistics said Britain's gross domestic product rose by 1.0 percent between July and September after shrinking by 0.4 percent between April and June. On the year, the economy was flat.

 Of course, there is the usual comments that these figures contain one off events like the Olympics and an extra day working etc etc but overall it is still a better picture.   Industrial output was 1.1 percent higher, the strongest rise since the second quarter of 2010. Construction - which accounts for less than 7 percent of GDP - contracted by 2.5 percent.

 Other indicators have pointed to an improving picture.  The Markit's purchasing indexes have shown an improvement, unemployment has been falling, retail sales have been improving and the insolvency rate has been falling.  

 Now wait, that last one, the insolvency rate, is an interesting one.  Historically, if the economy improves after a recession then the insolvency rate actually rises....

Why is that?  Simply because creditors get tougher when they think there is a better chance of getting the money and banks look to call in loans when there is a market for assets if the business cannot survive.  Also if they want to lend to a growing company they will need to stop lending to a failing one.    Finally there is the issue of overtrading.  This is when orders are made but the money from customers is not called in fast enough to fund the expansion.  

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