UK economic growth

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Thankyou4calling

Original Poster:

10,595 posts

172 months

Tuesday 27th January 2015
quotequote all
I saw today that the UK economy grew at 2.5% last year, it was said to be the fastest growth since 2007.

My query relates to how this figure is arrived at.

Suppose you have a year of decline (recession) as we have had and then record growth, is this measured against the year of decline in which case we may not be back to where we were and that is without including inflation.

With our total population 10% up on previous and inflation at perhaps 3 or 4% isn't 2.5% of total growth actually a decline in real, like for like terms or am I missing something?

London424

12,826 posts

174 months

Tuesday 27th January 2015
quotequote all
Thankyou4calling said:
I saw today that the UK economy grew at 2.5% last year, it was said to be the fastest growth since 2007.

My query relates to how this figure is arrived at.

Suppose you have a year of decline (recession) as we have had and then record growth, is this measured against the year of decline in which case we may not be back to where we were and that is without including inflation.

With our total population 10% up on previous and inflation at perhaps 3 or 4% isn't 2.5% of total growth actually a decline in real, like for like terms or am I missing something?
http://www.ons.gov.uk/ons/rel/elmr/explaining-economic-statistics/understanding-gdp-and-how-it-is-measured/sty-understanding-gdp.html

Esseesse

8,969 posts

207 months

Tuesday 27th January 2015
quotequote all
I don't think you're missing anything. IMO it's largely a bks figure (GDP) anyway for measuring the health of the economy because borrowing and spending more equates to economic growth.

crankedup

25,764 posts

242 months

Tuesday 27th January 2015
quotequote all
Its yet another economic miracle performed by the current sitting Government. Unemployment down, more young persons in apprenticeships, wages up, growth up, inflation down, interest rates held again at all time low, benefits bill down, more NHS staff.

Most of it is b*llocks of course, who would have thought an general election is around the corner! Working people in the U.K. have never had it so bad for the past 50 years. Workers treated like sh*t whilst those at the top ingratiate themselves like pigs to a trough.

Still the current Coalition is a better bet than some of the other hopefuls I guess rolleyes

Dr Jekyll

23,820 posts

260 months

Tuesday 27th January 2015
quotequote all
It's measured against the previous year, allowing for inflation but not population changes.

Obviously it doesn't tell the whole story but it's a pretty good guide to the health of the economy. Borrowing/lending and buying/selling is exactly what you want to measure.

Gargamel

14,958 posts

260 months

Tuesday 27th January 2015
quotequote all
My old economics teacher used to give this example of GDP.

If everyone in the UK went out today and crashed their cars.

GDP would go up, as repairs were made, insurance companies hired more staff, Car Hire, taxis were used more often.

But nothing of any REAL economic value was created, and it was a one off event.

GDP is a broad measure of activity, as sort of BMI of the economics world

Dr Jekyll

23,820 posts

260 months

Tuesday 27th January 2015
quotequote all
Gargamel said:
My old economics teacher used to give this example of GDP.

If everyone in the UK went out today and crashed their cars.

GDP would go up, as repairs were made, insurance companies hired more staff, Car Hire, taxis were used more often.

But nothing of any REAL economic value was created, and it was a one off event.

GDP is a broad measure of activity, as sort of BMI of the economics world
Unless there is some evidence that recent growth figures have been distorted by a massive increase in car crashes, this is irrelevant.

fido

16,752 posts

254 months

Tuesday 27th January 2015
quotequote all
Gargamel said:
GDP would go up, as repairs were made, insurance companies hired more staff, Car Hire, taxis were used more often.
Agreed, debt is the other side of the equation - if the increase in car repairs is not offset by a corresponding decrease in consumer expenditure in other areas or a fall in profits for insurance companies leads to smaller bonuses, firings or dividend payouts etc.

Digga

40,206 posts

282 months

Tuesday 27th January 2015
quotequote all
Dr Jekyll said:
Unless there is some evidence that recent growth figures have been distorted by a massive increase in car crashes, this is irrelevant.
What about if it is distorted by PPI payouts and massive sign-ups for PCP/HP?

Gargamel

14,958 posts

260 months

Tuesday 27th January 2015
quotequote all
Dr Jekyll said:
Unless there is some evidence that recent growth figures have been distorted by a massive increase in car crashes, this is irrelevant.
Sorry, what?

The OP has asked how the figure is calculated, I have shown that some things included in GDP aren't necessarily adding to the true wealth of the country. I.E. if you repair any machinery, it counts as "activity" - you could in theory have an awful lot of such activity counting towards growth, but at the end of the day still have the same number of machines/cars whatever as you had at the start.

It is a part of the make up of GDP, it isn't irrelevant, and perhaps rather than fairly obtuse remarks, you might like to contribute something positive instead of being snippy !


JustAnotherLogin

1,127 posts

120 months

Tuesday 27th January 2015
quotequote all
Gargamel said:
Dr Jekyll said:
Unless there is some evidence that recent growth figures have been distorted by a massive increase in car crashes, this is irrelevant.
Sorry, what?

The OP has asked how the figure is calculated, I have shown that some things included in GDP aren't necessarily adding to the true wealth of the country. I.E. if you repair any machinery, it counts as "activity" - you could in theory have an awful lot of such activity counting towards growth, but at the end of the day still have the same number of machines/cars whatever as you had at the start.

It is a part of the make up of GDP, it isn't irrelevant, and perhaps rather than fairly obtuse remarks, you might like to contribute something positive instead of being snippy !
Well you do seem to have missed the point of the lesson. There are lots of transactions that do not increase the "net wealth" of the country.

For example the restauarant meal you had last week. No change in net wealth because the only thing produced has gone...well lets not discuss that.

But there has been economic activity, that contributes to the GDP and that is considered the best indicator of the health of an economy.

Inflation is nothing like what was quoted earlier
GDP allows for that anyway as has been said
Net migration much smaller than the GDP (not sure of the exact figure, but less than 0.5% anyway).

So that is real growth in the economy whether or not the sceptics have experience it.

Combined with the continued fall in unemployment this is all good news. Can't imagine why some people are so miserable about it.

Grumfutock

5,274 posts

164 months

Tuesday 27th January 2015
quotequote all
This is all very nice and informative but if we could just get the CPI rate to go up for the next 6-7 years then I will be a happy man.

menousername

2,106 posts

141 months

Tuesday 27th January 2015
quotequote all
I'm a casual economic observer so I do not have the exact figures or the links, but in two separate reports I have seen that 4th quarter GDP was only 0.5% and weaker than expected, and that the deficit was increasing.

Yet any interview with any Conservative MP that touches upon economics, is met with the proclamation that the deficit "has been halved" and that the economy is improving

Gargamel

14,958 posts

260 months

Tuesday 27th January 2015
quotequote all
JustAnotherLogin said:
Well you do seem to have missed the point of the lesson. There are lots of transactions that do not increase the "net wealth" of the country.

For example the restauarant meal you had last week. No change in net wealth because the only thing produced has gone...well lets not discuss that.

But there has been economic activity, that contributes to the GDP and that is considered the best indicator of the health of an economy.

Inflation is nothing like what was quoted earlier
GDP allows for that anyway as has been said
Net migration much smaller than the GDP (not sure of the exact figure, but less than 0.5% anyway).

So that is real growth in the economy whether or not the sceptics have experience it.

Combined with the continued fall in unemployment this is all good news. Can't imagine why some people are so miserable about it.
Indeed the continued fall in unemployment is a big deal. Labour are tryign to pretend it is nothing, but actually it is pretty miraculous and something most Western economies now would kill for.



JustAnotherLogin

1,127 posts

120 months

Tuesday 27th January 2015
quotequote all
menousername said:
I'm a casual economic observer so I do not have the exact figures or the links, but in two separate reports I have seen that 4th quarter GDP was only 0.5% and weaker than expected, and that the deficit was increasing.

Yet any interview with any Conservative MP that touches upon economics, is met with the proclamation that the deficit "has been halved" and that the economy is improving
That is the figure for the 4th quarter - down from 0.7% in the others. Even if continued that would still be a healthy 2% growth. Economists seem to be divided as to whether it is a slowdown or a blip (no surprise there)

I think the deficit in monetary terms is now coming down a bit, but as % of GDP it has been halved, i.e. my mortgage is now only £1000pcm (if only), but my income has gone up so it is now only 1% of my income instead of 2%. The proportion it is of GDP defines how affordable it is. Someone posted the actual figures recently but I haven't time to look now

London424

12,826 posts

174 months

Tuesday 27th January 2015
quotequote all
JustAnotherLogin said:
menousername said:
I'm a casual economic observer so I do not have the exact figures or the links, but in two separate reports I have seen that 4th quarter GDP was only 0.5% and weaker than expected, and that the deficit was increasing.

Yet any interview with any Conservative MP that touches upon economics, is met with the proclamation that the deficit "has been halved" and that the economy is improving
That is the figure for the 4th quarter - down from 0.7% in the others. Even if continued that would still be a healthy 2% growth. Economists seem to be divided as to whether it is a slowdown or a blip (no surprise there)

I think the deficit in monetary terms is now coming down a bit, but as % of GDP it has been halved, i.e. my mortgage is now only £1000pcm (if only), but my income has gone up so it is now only 1% of my income instead of 2%. The proportion it is of GDP defines how affordable it is. Someone posted the actual figures recently but I haven't time to look now
When the coalition took over the deficit was about 150 bil per year...now its about 90. So not quite half, but heading in the right direction.

Timmy40

12,915 posts

197 months

Tuesday 27th January 2015
quotequote all
Gargamel said:
JustAnotherLogin said:
Well you do seem to have missed the point of the lesson. There are lots of transactions that do not increase the "net wealth" of the country.

For example the restauarant meal you had last week. No change in net wealth because the only thing produced has gone...well lets not discuss that.

But there has been economic activity, that contributes to the GDP and that is considered the best indicator of the health of an economy.

Inflation is nothing like what was quoted earlier
GDP allows for that anyway as has been said
Net migration much smaller than the GDP (not sure of the exact figure, but less than 0.5% anyway).

So that is real growth in the economy whether or not the sceptics have experience it.

Combined with the continued fall in unemployment this is all good news. Can't imagine why some people are so miserable about it.
Indeed the continued fall in unemployment is a big deal. Labour are tryign to pretend it is nothing, but actually it is pretty miraculous and something most Western economies now would kill for.
Presumably why Labours sole election policy seems to be to go on about the NHS. I've not heard them mention anything else. Immigration, Law and Order, the Economy, Europe, English Devolution, Military spending? Nope the answer to everything is "we'll spend more money on the NHS". Ok fine, but we all kind of knew that already.

Dr Jekyll

23,820 posts

260 months

Tuesday 27th January 2015
quotequote all
Gargamel said:
Dr Jekyll said:
Unless there is some evidence that recent growth figures have been distorted by a massive increase in car crashes, this is irrelevant.
Sorry, what?

The OP has asked how the figure is calculated, I have shown that some things included in GDP aren't necessarily adding to the true wealth of the country. I.E. if you repair any machinery, it counts as "activity" - you could in theory have an awful lot of such activity counting towards growth, but at the end of the day still have the same number of machines/cars whatever as you had at the start.

It is a part of the make up of GDP, it isn't irrelevant, and perhaps rather than fairly obtuse remarks, you might like to contribute something positive instead of being snippy !
No, the question was how GROWTH was calculated, not GDP. Since activity such as repairs included in the current GDP were also included in the previous GDP, they are irrelevant to the issue of where the growth came from.

JustAnotherLogin

1,127 posts

120 months

Tuesday 27th January 2015
quotequote all
London424 said:
When the coalition took over the deficit was about 150 bil per year...now its about 90. So not quite half, but heading in the right direction.
But as a % of GDP it is about half. Which is what I said

Gargamel

14,958 posts

260 months

Tuesday 27th January 2015
quotequote all
Dr Jekyll said:
No, the question was how GROWTH was calculated, not GDP. Since activity such as repairs included in the current GDP were also included in the previous GDP, they are irrelevant to the issue of where the growth came from.
Fair play, I see your angle

I guess my response regarding car crashes is an example of how GDP does not call out the instances of real wealth creation over mere activity.