The UK economy grew by 0.8% in the second quarter, according to the preliminary estimate from the Office for National Statistics. This was in line with market expectations and marks the second consecutive quarter on quarter increase of 0.8%. Much of the headline news focused on the fact that UK GDP is now estimated to be 0.2% above the pre-crisis peak of Q1 2008.
There are two caveats though. First, GDP per capita, i.e. output per individual, remains significantly below the pre-crisis level. Second, the UK economic recovery is “unbalanced”, driven by household spending with borrowed money. The Bank of England Governor, Mark Carney, has been vocal on this point. Therefore, the big challenge will be to sustain the recovery without debt fuelled spending (not unique to the UK) as borrowing to spend simply takes consumption from the future. This is one of the main reasons Carney will delay raising interest rates as long as possible and why normalisation will be very gradual