Thursday, May 22, 2014
A solid rise in GDP - borrowing blips higher
Posted by David Smith at 10:00 AM
Category: Thoughts and responses

GDP in the first quarter was unrevised at 0.8%, for a rise of 3.1% on a year earlier. Within that, production output rose by 0.7%, construction by 0.6% and services by 0.9%. On the expenditure measure there was 0.8% increase in household spending and a 0.6% increase in gross fixed capital formation (investment), including a 2.7% quarterly rise in business investment. Exports and imports both fell and there was no contribution to growth from net trade.

Interestingly, if we take growth over the past year, gross fixed capital formation contributed 1.5 points of the 3.1% growth in the economy, more than consumer spending (1.3).

Even more interesting is that compensation of employees was up 4.1% on a year earlier in the first quarter, continuing its recent much stronger trend. Though that includes factors such as higher pension contributions by firms, and though part of it reflects rising employment, it is on the face of it hard to square with the weakness of the average earnings data. The GDP figures are here.

What we don't know is how much of a distortion there is because of the unusual pattern of bonuses last year, when many were delayed to April to avoid the 50% top tax rate. On the face of it the public borrowing numbers for April were disappointing, with underlying borrowing of 11.5 billion, 1.9 billion higher than in April 2013. A look at the detail of income tax and National Insurance contributions suggests, however, that the bonus effect - much lower bonuses this year than last - was important.

The public finance numbers are here. The earnings figures will be badly distorted by this bonus effect for the next couple of mnonths and should not be taken too seriously.