Analysis

GDP expected to pass pre-recession peak as election season moves into full flow

The preliminary estimate of GDP for Q4 in 2013 revealed that the economy grew by 0.7% on the previous quarter. Overall this means that annual growth in 2013 is estimated to be 1.9% higher than the previous year.

Whilst growth in the economy is welcome, the timing of some of the positives revealed in the release could lead to a very interesting election campaign.

The Q4 estimate revealed the overall economy to be 1.3% below the peak of Q1 2008, and with the Q1 estimate expected to be of a similar scale to that of Q4, the UK would be on course to cross the threshold of growing above its pre-recession peak by the summer.

The timing of this event will, therefore coincide with the point at which political parties will start to refine their campaign messages for the 2015 election.  

While all parties will try to capitalise on the good news of the economy finally passing this point, it is likely that the other item that will be picked up on is the estimates of just how badly the UK economy was affected by the recession and financial crisis.

"With the Q1 estimate expected to be of a similar scale to that of Q4, the UK would be on course to cross the threshold of growing above its pre-recession peak by the summer."

The latest ONS numbers show that from the peak (Q1 2008) to the trough (Q2/Q3 2009) GDP decreased by 7.2%. Additionally, the scale of previous downturns does not compare to that of the recent one; the downturn of the early 1990s resulted in a drop in GDP of 2.9% from peak to trough, while the previous recession resulted in a decrease of up to 5.9%. 

While the scale of the decline above, alongside low wage growth, demonstrates the reason why individuals may not be feeling the effects of growth in GDP this situation is likely to shift over the next twelve months as long as confidence continues to build.

It is this confidence that will be vital if growth is to continue. The last thing the UK economy needs is an election campaign that focuses solely on the negatives and undermine individuals expectations of improving conditions going forward. 

Graham Pontin is senior economist at the Association for Engineering & Consultancy