When George Osborne, the UK chancellor of the exchequer, stands up to deliver his Autumn Statement on Thursday, he will be able to talk about good economic news for the first time since 2010. The speed of recovery in the economy in the past six months has been little short of astonishing. This will certainly have persuaded the Office for Budget Responsibility to increase its gross domestic product growth forecast for 2014, causing an automatic reduction in government deficit and debt projections.
The vicious circle linking low growth and high budget deficits, so prominent in Mr Osborne’s first three years, has been transformed into a virtuous circle — for now, at least. It will take a Herculean effort of self-control for Mr Osborne to resist claiming: “Austerity works”.
The acceleration in UK GDP growth during 2013 has far out-stripped that in any other leading economy, following a period of several successive years in which the opposite was the case. According to “nowcasts” for economic activity (see graph below), UK growth has been running at above 5 per cent annualised for several months, compared to about 1.5 per cent at the start of the year. For a while, sceptics argued that these nowcasts were being over-influenced by buoyant survey data, but there is now evidence from hard economic data that the take-off in activity is genuine. Read more