Public fails to applaud Labour's boast about one set of figures

Times

2 days ago

When, a few days ago, gross domestic product (GDP) figures were released for the second quarter, showing a 0.3 per cent rise, the sighs of relief from the Treasury were almost loud enough to be audible all over London. Better-than-expected figures are quite rare, and they did indeed exceed expectations.
Quite quickly, relief turned into something more pugnacious. Combining the second-quarter figures with the first, which showed a stronger 0.7 per cent rise, meant UK growth in the first half of the year was the strongest in the G7, which Labour was soon splashing all over social media and encouraging journalists to put in their stories. 'Labour is driving growth so that we can put more money back into people's pockets,' was the accompanying message, highlighted by Rachel Reeves, the chancellor.
The G7 is the grouping of large economies which takes in, as well as the UK, America, Japan, Germany, France, Italy, and Canada, and the claim was true. The UK's growth over that period compared with 0.6 per cent in America, 0.4 per cent for Japan and France, 0.2 per cent for Germany and Italy, and 0.5 per cent for Canada.
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If the government expected a warm reception for bringing this to people's attention, however, it miscalculated. The 'fastest growth in the G7' claim was met with scepticism, outright disbelief, and hostility.
Some of this was based on ignorance. Many people responded by pointing out that the US economy grew by 3 per cent in the second quarter alone. That was based on a misunderstanding of the statistics. America reports growth rates on an annualised basis, so 3 per cent annualised growth in the second quarter was a shade over 0.7 per cent, as we and most others would report it. It followed a 0.5 per cent annualised fall in the first quarter, so a drop of just over 0.1 per cent then. Combining the two gives 0.6 per cent.
Some hostility was from bots or people who cannot concede that anything even slightly good can happen under this government, a number that has grown over the past year.
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Another strand of criticism was that growth has happened only because of increased government spending, which is not sustainable. There is an element of truth in that, because government spending in real terms grew by 1.2 per cent in the second quarter. Over the first and second quarters together, though, both consumer spending and net trade (exports minus imports) made bigger contributions to growth. The other ways of estimating GDP showed a rise in private sector services and manufacturing, as well as a strong rise in income from employment.
There are two essential points to be made in all this. The first is that comparisons with the rest of the G7, particularly the very slow-growing rest of the G7 during a turbulent first half of 2025, do not cut much ice.
Most people do not know what the G7 is, let alone have any grasp of what growth conditions have been like among its members. People and businesses know only what they themselves have been experiencing and are not happy with that.
Indeed, you do not have to look very far into recent history to know that 'fastest growth in the G7' is no political game-changer. The Tories tried it in the run-up to last year's election after an even stronger first quarter of 2024 figure, now estimated at 0.9 per cent. There was no political turnaround but a landslide defeat, the economy's late flowering being not enough to convince anybody.
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Despite the government's emphasis on growth, which is indeed necessary, changes in GDP, or GDP per head, take time to feed through to perceptions. If people are doing better, they will tend to attribute it to their own efforts, or good fortune, rather than the gift of growth handed down to them by the government. The same is true for businesses, which is why just about every confidence survey has firms more optimistic about their own prospects than the economy in general.
There is another dimension. As I write this, the next set of UK inflation figures are awaited, and by the time you read this, they may well have been published. They were set to show inflation running closer to 4 per cent than the 2 per cent official target. That matters.
Another lesson from recent history concerns the woes faced by America's Democrats last year. Had Joe Biden tried to fight the election last year, despite his obvious infirmities, he probably would not have fared much better than his then vice-president, Kamala Harris.
On the economic front, what did for Biden and Harris was high inflation, particularly for gasoline, rents, and basic products such as eggs. Had Biden been able to rely on GDP alone, he would have sailed home. America's GDP at the end of last year was 12 per cent above pre-pandemic levels, four times that of the UK and streets ahead of any other G7 economy.
Not until UK inflation is back down to 2 per cent, the current wave of food price inflation has passed through, the public finances are under control, and growth stronger than in the second quarter will the government have something to brag about.
It is a pity for the government that the 'strongest in the G7' message got in the way of aspects of the GDP figures that were encouraging. GDP per head, which many people would regard as the key measure, rose by 0.8 per cent in real terms in the first half of the year and at the end of the second quarter was 0.7 per cent up on a year earlier.
That represented a reversal of fortunes, in a good way. During the last parliament, GDP per head fell by 0.5 per cent, a terrible performance. There were the seeds of something better in the latest figures, but it is never a good idea to take these things, and the public, for granted.
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