The recent upward revisions to GDP added to evidence of a post-election bounce in the UK economy. Employment is rising, and this is not just about growth in part-time and self-employment, and real income growth has picked up, while consumer confidence has moved to a 15 year high. While the housing data has been mixed, the more forward looking elements, such as the monthly RICS survey, suggest a rebound. Taken in the round, I would expect a certain amount of self-congratulation in the forthcoming Budget. The budget deficit has been falling somewhat faster than expected thanks to better tax returns and an ongoing squeeze on incomes.
The weakness in productivity growth has been an unwelcome feature of the UK recovery, however the latest data from the ONS point towards an improvement: measured as output per hour, productivity growth rose in Q1, to a level not far short of its 2% long term average. The key sources of economic growth are more labour and/or more capital, or using these two inputs more productively. Taken at face value, it appears that an improvement in economic growth has encouraged firms to invest, while rising wages have created an incentive to boost the productivity of their existing workforce, rather than hire more workers.
